What is this.."Do not believe the rumor until is officially denied? :)
Euro Slides to Record Low vs Dollar on Speculation
ECB Won't Buy Currency
By Malcolm Foster
Euro Falls to Low vs Dollar; ECB May Not Buy Euros (Update3)
(Updates rates.)
New York, June 2 (Bloomberg) -- The euro fell to its lowest
level against the dollar after government officials signaled the
European Central Bank won't bolster the single currency amid
sluggish European economic growth.
''I can't see any reason for intervention,'' said Ernst
Welteke, who will become head of the Bundesbank in September.
''What is causing the weakness of the euro means intervention
wouldn't work,'' he said in a speech in Dusseldorf. Many traders
had speculated in recent days the ECB would buy the euro to halt
its 11.3 percent decline this year.
The euro fell as low as $1.0329 from $1.0448 yesterday. It
was recently at $1.0348. The dollar rose to 121.48 yen from
120.72 yesterday.
''The ECB doesn't want to stand in front of'' a tumbling
euro, said Stanley Cherny, who helps manages $1 billion in global
bonds at Hartford Investment Management in Hartford, Connecticut.
Besides, ''if their currency is weakening, that should help their
economies'' by boosting exporters' income.
ECB President Wim Duisenberg said the euro ''has clear
potential for stronger value.'' Even so, his remarks failed to
convince traders that the bank wants to halt the euro's slide.
''You'd think that with the euro at all-time lows, he'd be
more adamant in its defense,'' said Hugh Walsh, a senior trader
at Commerzbank AG. ''Interest rate and growth differentials favor
the dollar. It's tough to buy the euro.''
Lacking central bank purchases, the euro could fall to $1.00
as European economies slump and U.S. growth fuels expectations
for higher interest rates, traders said. Walsh sees it falling to
parity with the dollar within a week.
Little Concern
Klaus Gretschmann, chief international economic adviser to
German Chancellor Gerhard Schroeder, further damped speculation
that the ECB may soon intervene by saying that as long as the
euro stays above $1.03, there is no ''cause for concern.''
''They don't mind it being weak; it helps exporters,'' said
Mark Cox, who helps manages $300 million of stocks at Pinnacle
International Management. ''A BMW selling at $60,000 in the U.S.
will translate into more euros'' when revenue is brought home.
Against the mark, which preceded the euro as Europe's
centerpiece, the dollar rose as high as 1.8934 marks, its highest
level in almost 10 years. When the dollar rose as high as 1.8905
on Aug. 6, 1997, traders said the Bundesbank sold dollars to buoy
the mark.
The European Commission, the European Union's executive
agency, projects that economic growth in 11-nation single
currency zone will slow to 2.2 percent this year from 3.0 percent
last year. The U.S. economy, meanwhile, grew at a 4.1 percent
annual pace in the first quarter, extending its growth into a
ninth year.
The ECB on April 8 cut its benchmark refinancing rate to 2.5
percent from 3 percent in an attempt to stimulate growth. The
Federal Reserve said at its last policy meeting that it is
leaning toward raising the benchmark U.S. rate from the current
4.75 percent.
''If people start talking more about raising interest rates
in the U.S., that may push (the euro) to parity'' with the
dollar, Cox said. ''There's a magnetic force pulling it to one-to-
one. It becomes almost self-fulfilling.''
Kosovo
Traders also sold euros on concern that negotiations to end
the war in Kosovo may be delayed. The euro is down almost 5
percent since NATO's bombing started March 24, amid concern that
paying for the effort and housing refugees will make it harder
for euro-region countries to end an economic slowdown.
The euro isn't going to recover until ''the U.S. economy
comes off the boil,'' said Clark McGinn, head of currency sales
at Royal Bank of Scotland. He said it will take ''a perception
that Europe is tackling its structural problems and good news out
of the Balkans'' to turn the euro higher.
Strategists and traders estimate that the euro could gain as
much as three cents if the conflict is quickly resolved.
''If we were to reach a cease-fire in Kosovo tomorrow, one
which people believed would last,'' the euro could rally as high
as $1.07 to $1.0750, said Jim O'Neill, the chief currency
economist at Goldman, Sachs & Co.
Among the world's most widely traded currencies, the euro is
the third worst performing versus the dollar this year, after the
Brazilian real and Danish krone.
Japan Job Plan
In earlier trading, the dollar fell against the yen on
speculation Japan will increase government spending to alleviate
record unemployment and boost growth.
The government said it will release details June 11 of a
package aimed at creating jobs and lowering April's 4.8 percent
unemployment rate. Any steps that help drag the economy out of
its worst recession in half a century may help the yen pare this
year's 5.7 percent decline against the dollar.
Still, traders said the yen won't benefit much until there's
evidence that new measures are taking effect.
''Any package needs time to prove that it's working,'' said
Christoph Benz, a trader at Bayerische HypoVereinsbank in Munich.
''The dollar is likely to stay above 119 yen for now.''
The Japanese budget -- which may allocate as much as 10
trillion yen ($80.6 billion) for spending on new programs -- may
also include more public works spending and funds to combat
Japan's low birth rate, according to legislators.
The measures are slated for release the day before finance
ministers and central bank officials from the Group of Seven
biggest industrial nations meet June 12 in Cologne, Germany.
Elsewhere, the British pound fell to $1.6046 from $1.6121
yesterday. The dollar rose to 1.5367 Swiss francs from 1.5242 and
declined to 1.4796 Canadian dollars from 1.4835 yesterday.
©1999 Bloomberg L.P. All rights reserved. Terms of Service, Privacy Policy and Trademarks. |
