FOCUS-Euro rises to eight-week highs against dollar
10:29 a.m. Oct 01, 1999 Eastern
By Carolyn Cohn
LONDON, Oct 1 (Reuters) - The euro rose to its highest levels
against the dollar since early August on Friday, and analysts
said it was poised for rapid gains provided it could break
crucial resistance around $1.08.
Stronger than expected European purchasing managers' surveys
and hawkish comments by European Central Bank officials
propelled the single European currency to a high of $1.0767, its
strongest since August 6 and a gain of 3.6 percent from the
week's low set on Monday.
``This is a Euroland growth story,' said Duncan Webster, head
of global strategy and currency research at Hypovereinsbank in
Munich.
``We have had the leading indicators and now we are waiting
for the hard facts.'
Manufacturing in the euro zone grew at its quickest pace in
September in 14 months, according to the Reuters Purchasing
Managers Index, while input prices jumped by their fastest rate
in over two years.
PRICE PRESSURES
ECB Chief Economist Otmar Issing said on Friday euro-zone
price risks were on the upside and also said he had no
differences of opinion with ECB Vice President Christian
Noyer, who on Monday said the ECB may have to act sooner
rather than later to head off price pressures in the euro-zone
economy.
ECB President Wim Duisenberg echoed the theme later in the
day. Speaking in New York, Duisenberg said most data
supported the outlook of European cyclical improvement but
upward long-term risks to price stability should not be
overlooked. He also said recent large swings in the euro
seemed to be over.
The ECB holds its fortnightly policy-setting meeting next
Thursday, and Steve Barrow, currency strategist at Bear
Stearns in London, said the euro-zone's central bank was likely
to raise interest rates from their current 2.50 percent.
``Duisenberg started to talk about a tightening bias in July, and
the futures strip is pricing in higher rates. The ECB needs to
take a reasonably pre-emptive look at things,' he said.
Duisenberg said in July of the ECB that a tightening bias ``may
be creeping into our considerations.'
WELTEKE WORRY
But foreign exchange traders also remember comments from
Bundesbank President Ernst Welteke in early summer, before
he took up the presidency of Germany's central bank.
Welteke told traders in June to ignore the euro's launch rate of
$1.1747 as a reference level for the currency and focus instead
on the Ecu's early 1998 rate of $1.08. In July, Welteke said too
strong a euro would reduce the competitiveness of euro
exporters.
Graham Cocks, manager, corporate treasury at Mellon in
London, saw $1.08 as likely to cap euro/dollar by the end of
the year. ``How far can the euro go? Welteke is a worry, as he
was quite outspoken that the euro should not recover that fast,'
he said.
The August 5 high for the euro around $1.0820 also provides a
strong technical barrier for Europe's single currency, chartists
said. |
