May 27 1999--Budget deficit fears see euro at record low
BY ALASDAIR MURRAY
ECONOMICS CORRESPONDENT
Britain's trade gap widens to a record £7.1 billion
THE euro slumped to a record low against the dollar
yesterday as concerns mounted that the fragile health of
the European economy may be beginning to take a toll of
government budget deficits.
The euro fell through the key psychological level of $1.05
with the currency's losses compounded by further
evidence that the European Central Bank has no intention
of intervening in the markets at this stage.
Gold also tumbled to a 20-year low as the market
digested Eddie George's robust defence of Britain's
planned gold sales.
The euro fell nearly 1 per cent across the day, tumbling
from $1.0625 to a low of $1.0464. It has now lost nearly
12 per cent of its value against the dollar since its launch at
the beginning of the year. The euro also lost ground
against the pound, sliding from 66.23p to 65.54p but
stopped short of the record low of 65.14p established
earlier this month. The dollar also made modest gains
against the pound closing at $1.5967 from $1.6015.
Traders said the European Central Bank's reluctance to
intervene was only tempting the market to send the euro
lower, especially with an improved performance on Wall
Street yesterday helping to underpin the dollar.
Yves-Thibault de Silguy, acting European Commissioner
for Monetary Affairs, and Antonio de Sousa, Governor of
the Bank of Portugal, added their support to the ECB's
policy of "benign neglect" insisting that the euro was not at
worrying levels.
The suggestion that Italy will be allowed to loosen its
budget deficit target for this year also undermined market
confidence in the single currency. Analysts expressed
concern that it could mark the first step towards a
weakening of the fiscal stability pact, with the budget
deficit targets of both France and particularly Germany
also regarded as vulnerable to a slowdown in growth.
Early trading falls had been triggered by comments from
Wim Duisenberg, President of the ECB, and Hans Eichel,
the German Finance Minister. In an interview due to be
published today, Mr Duisenberg said he saw no
immediate danger that the decline in the euro was
threatening the ECB's inflation target. His comments were
supported by Herr Eichel who insisted there was no
"acute need" for intervention.
In the precious metal markets, gold slipped to $269.50 an
ounce - its lowest level since May 1979 - after Mr
George offered strong support to the Government's
decision to sell off half of Britain's gold reserves.
Britain's trade gap widens to a record £7.1
billion
THE strong pound has sent the UK trade deficit soaring
to its highest level since records began (Lea Paterson
writes).
A sharp fall in exports to Europe helped to push the global
deficit on traded goods to a record £7.1 billion in the first
quarter, the Office for National Statistics said.
In March alone, the trade deficit with the EU topped £1
billion, the highest monthly figure since July 1990. Exports
to Europe fell to 18-month lows, while import volumes
were at record highs. A decline in the quarterly oil surplus
to a six-year low of £538 million contributed to the
disappointing trade figures. The quarterly surplus on
traded services dropped to £2.6 billion, taking the UK's
combined goods and services deficit to £4.6 billion, a
nine-year high.
There were, however, signs of a nascent recovery in
non-EU trade. The April deficit on traded goods was a
better-than-expected £1.1 billion.
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