A stronger China is a plus for global demand, The German
uncertainty about the future of the Euro is bigger news
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April 25, 2000
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Economist's Comments
Sends Euro to New Low
An INTERACTIVE JOURNAL News Roundup
The battered euro fell to another low against the dollar Tuesday after a top German economist said Germans were losing faith in the European currency.
At midafternoon in New York, the euro traded at 92.26 U.S. cents, down from 93.85 cents late Monday in New York. The euro's previous low was 93.53 cents set Thursday.
The dollar, meanwhile, bought 105.68 yen, down from 105.77 yen late Monday in New York. The British pound was unchanged at $1.5785.
Traders said the euro's plight worsened after Juergen Donges, the professor who heads the German government's council of economic advisors, said in a weekend interview with the British newspaper the Daily Telegraph that Europe has to undertake "fundamental structural reforms" if the euro is to recover from recent losses.
Mr. Donges, one of German Chancellor Gerhard Schroeder's chief economic advisers, said the euro's weakness was causing some Germans to lose faith in the currency. He also accused Italy and France of backsliding on promises to reform their labor markets, as well as tax and pension systems.
The euro also was hurt by a poll in Denmark, which showed voters split almost equally for and against membership in the European Monetary Union. The poll shows a lead of just two percentage points for the group supporting euro membership, down from three percentage points in a poll a month ago. A referendum on whether the country should adopt the euro will be held in September.
The European Central Bank meets Thursday to discuss interest rates. The market is split on whether the bank will be able to justify a rate increase for reasons not related directly to the euro's weakness. Central bankers have consistently insisted that they won't allow the currency's levels to dictate their decisions regarding monetary policy.<?b>
"The feeling is -- if they hike rates, they've done it to defend the currency and are no longer a credible institution, yet if they don't, they're also considered no longer credible," said Hillel Waxman, first vice president of foreign exchange at Bank Leumi in New York. "They're really caught between a rock and a hard place."
With the euro down 3.50 cents since the beginning of last week, market participants were talking increasingly about a slide to 90 cents, and believe that for now any rebounds are likely to be shallow.
Meanwhile, the dollar fell against the yen as Japanese exporters sold the U.S. currency to hedge against their foreign currency exposure before the Japanese "Golden Week" holidays that begin April 29 and end May 7. While markets will be open Monday and Tuesday, many Japanese workers plan to take those days off.
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