Never mind where Gold's bottom, where is Euro bottom..or is there one..Cost of production for Euro is close to ZERO
Euro Falls to Lowest Level Yet Against Dollar on
Concern About EU Deficits
By Malcolm Foster
Euro Drops to New Low on EU-Italy Budget Compromise (Update1)
(Adds comments by Duisenberg in 2nd section. Updates rates.)
New York, May 26 (Bloomberg) -- The euro fell to its lowest
level against the dollar amid concern European nations might
soften their vigilance on keeping budget deficits down, eroding
confidence in the five-month-old single currency.
The European Union late yesterday relaxed demands that Italy
stick by a commitment to cut its 1999 deficit to 2.0 percent of
gross domestic product, allowing it to be as high as 2.4 percent.
''This could lead to the end of the whole fiscal rigidity
that made European monetary union work in the first place,'' said
Matthew Robertson, who manages $800 million in global bonds at
Neuberger & Berman. He had bought euros, betting ''it had scraped
the bottom at $1.0550. But with news like this, we have to get
out. It looks like a painful, steady drip lower.''
In late afternoon trading, the euro fell to $1.0457 from
$1.0624 late yesterday in its biggest one-day drop, leaving the
single currency down 10 percent since Jan. 1. The dollar was
little changed at 122.23 yen from 122.25 yesterday.
The European currency's decline has been largely driven by
sluggish growth and high unemployment in Europe. That's in
contrast with the U.S., where the economy has been expanding for
nine years and the jobless rate is near 29-year lows.
Just today, France, the region's second-largest economy,
said consumer spending fell 0.2 percent in April.
U.S. Treasury Secretary Robert Rubin downplayed today's
report of a 2.3 percent drop in April durable goods orders. The
economy's ''most likely track is what I've said many times
before, low inflation and sold growth -- subject to ups and
downs.''
''Growth in the U.S. is much stronger than the rest of the
world,'' said Ivar Bjornstad, treasurer in charge of foreign
exchange at Den Norske Bank, who predicts the euro will trade 1-
to-1 with the dollar in coming months. ''That makes it worthwhile
to buy dollars.''
Duisenberg
European Central Bank President Wim Duisenberg said economic
growth in the euro zone will recover and that ''the bottom of the
trough has been reached.'' Still, he warned against being too
optimistic about a rapid turnaround.
''Recovery is underway, be it very slowly,'' Duisenberg told
reporters in Frankfurt. ''Next year we'll see a rate of growth
very near to what we regard the trend rate of growth, in the
neighborhood of 2.5 percent.''
Economic growth in the 11 euro-zone countries may slow to
2.2 percent this year from 3.0 percent in 1998, the European
Commission, the EU's executive arm, said in March, scaling back
its earlier forecast of 2.6 percent expansion.
Asked about the euro's drop, Duisenberg said it's ''not at
all unnatural, also not at all unexpected'' that a weaker euro
should reflect sluggish economic growth in the euro region.
In an interview in the German business weekly
Wirtschaftswoche, Duisenberg said he sees no reason yet to be
concerned that the euro's drop against the dollar will cause
prices to rise.
''The development so far doesn't keep me from sleeping well
at night,'' Duisenberg said in the article.
Breaking $1.05
The euro's decline accelerated after it fell below $1.0550,
triggering automatic sell orders. Traders often place such orders
to protect themselves in case a currency moves contrary to their
expectations.
Some traders had expected that once the euro dropped to new
lows, the European Central Bank, Bundesbank or other central
banks would buy euros to keep it from sliding. When there was no
apparent sign of that, traders pushed it lower, Bjornstad said.
The euro's decline is more a result of strong U.S. economic
growth than a mirror of investors' distrust in the single
currency, he said. Concern over the Kosovo war has also weighed
on the euro, he said.
Against the mark, which served as Europe's benchmark
currency before the euro's introduction, the dollar rose as high
as 1.8675 marks, the highest level since Aug. 12, 1997.
Slow Growth
Italy had initially set a deficit of 2.0 percent of gross
domestic product for 1999. The decision to increase that target
highlights slow growth in the euro zone's third-largest economy,
analysts said. It might also dissuade the ECB from cutting
interest rates further, they said.
''The EU's stability pact doesn't look very stable at the
moment,'' said Rob Newman, a currency trader at Bank of Nova
Scotia.
Still, the compromise may not hurt the euro for long, said
Alison Cottrell, chief economist at PaineWebber International in
London. Italy's new target ''does not break the stability pact''
outlining economic and monetary union, she said. ''We are talking
about a country waking up to the fact that its original targets
were way too optimistic.''
Elsewhere, the British pound dropped to $1.5965 from $1.6047
yesterday. The U.S. dollar rose to 1.5236 Swiss francs from
1.4991 and to 1.4714 Canadian dollars from 1.4674 yesterday.
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