The
Euro is the new currency (a/o 1-1-2001) of the European Union, which includes
Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
The Netherlands, Portugal, and Spain. As of 28 Feb 2008, the Euro is worth $1.52.)
(26 Nov 2004, the Euro is worth $1.386.) (27 May 2002, the Euro is worth $.9208.)
In February 2008, the euro broke through the magic mark of $1.50
per euro.
In November 2004, the euro broke through the magic mark of $1.30
per euro. This represented a decline
of 52% of the dollar against the euro since early 2002, when the euro had
reached its lowest point.
For
a considerable time the United States has enjoyed a position of undisputed power
among the world's countries. The superpower has been able, with some exceptions,
to shape critical global policies to serve its own internal needs. Yet, its huge
appetite for oil has left it dangerously vulnerable to the policies of Middle
Eastern oil exporters and to the vicissitudes of the Israeli-Palestinian conflict.
Historically,
the fact that oil prices are denominated in U.S. dollars has accorded the United
States a position of strength. This was bolstered by a strong military presence
in the Middle East, which was welcomed until recently by at least some oil exporting
states. But the global potential of the European Union's currency (the euro) and
the rising anti-U.S. sentiment in the Middle East coupled with a series of other
recent events, may lead OPEC to change oil pricing from the dollar to the euro
-- a decision which could have a drastic effect on the U.S. economy and on global
financial stability.
-
3/10/01 from SADDAM’S LAST LAUGH from TomPaine.com
PARIS, Dec 27, 2000 (AFP) - Even if the euro
has not gained the international stature of the dollar since it was launched two
years ago, the single currency has allowed the 11 euro-zone countries to guard
against financial turbulence and assure solid economic growth. "Without the euro,
we'd be in bad shape," said analyst Pascal Blanque with Credit Agricole, a leading
French bank. Economist Marc Touati with Natexis Banques Populaires said the weak
foreign exchange rate of the euro has been a strategic problem but the single
currency has been a success in commercial trade between nations. Lacking the euro,
financial turbulence would have rocked the euro-zone in the last two years, and
the member economies would have been subjected to big economic growth differences.
France,
which has one of the strongest growth rates in the zone, would have been under
pressure to raise its interest rates. In contrast, Italy would have found itself
under pressure cut interest rates and devalue its currency, to become more competitive
on the export market. Higher French interest rates would have created a large
gap with other countries in the zone, while Germany would have had the highest
interest rates of any euro-zone member, needed to staunch domestic inflationary
pressures. Competitive currency devaluations between European trading partners
and disparities in interest rates have in the past created a dog-eat-dog environment
which the euro was created to address. "All of this would have created a profound
instability on financial markets, and by consequence within the economies, which
would have harmed investments, and economic growth would have been curbed," Touati
said.
The monetary differences
between the different euro-zone members would have also affected the exports of
each member country. Now, thanks to the euro, euro-zone countries trade primarily
among themselves, and depend less on markets outside the currency area. Exports
outside of the euro zone represent less than 12 percent of the zone's gross domestic
product. "That is what you call the shielding effect of intra-zone trade, without
which the shock of the crisis of the emerging markets would have been a lot worse,"
Blanque said. "But the euro-zone is not completely immune against external shocks,"
he added. Financial fundamentals within the zone -- like the generally positive
trade balance and higher savings rates -- also guard against unfavorable external
influences. However, euro-zone stock market indices like the Paris CAC 40 and
the Deutsche Boerse in Frankfurt are still heavily influenced by the US share
markets.
The
euro has also woken up European companies, encouraging them to restructure, merge,
form alliances, buy each other up, and that has largely contributed to improve
productivity and competitiveness. Furthermore, the low interest rates have helped
European companies find cheaper investment and financing opportunities. Without
the still-young currency, tensions on long-term interest rates -- in both government
bond and private debt markets -- would have put certain investments out of reach.
The euro has also contributed to success for euro-zone bonds, which have attracted
massive foreign capital investment. Credit Agricole's Blanque said it has also
created an integrated and liquid bond market which is approaching US standards.
The
euro's prolonged fall against the dollar, recently reversed, has meant imported
inflation, particularly due to higher oil prices, but without a single currency,
some countries would have suffered a much stronger shock because of weak national
currencies.
Amsterdam,
Brussels, Paris Form Euronext
March
19, 2000 - PARIS (Reuters) - The bourses of Amsterdam,
Brussels and Paris have merged to form a common "Euronext" exchange
to be officially unveiled in London on Monday, the French newspaper Le Journal
du Dimanche said on Sunday.
"The Paris bourse is merging with Brussels and Amsterdam," le Journal
du Dimanche said, adding the new exchange has been baptized Euronext and will
be headed by Paris Bourse President Jean-Francois Theodore for four years.
Dollar Broadly Higher; Euro Down
March
2, 2000 - New York (AP) - The euro fell against the
dollar Thursday after the European Central Bank passed up an opportunity to raise
interest rates to prop up the currency. The dollar also rose broadly against key
currencies.
Speculation that the ECB might be intervening in currency
markets initially supported the euro, but the currency fell back later. In late
trading in New York, the euro was quoted at 96.63 cents, down from 97.48 late
Wednesday.
Markets have been expecting the ECB to move soon to raise
interest rates to support the euro, which hit an all-time low of 93.90 cents
on Monday. While the bank declined this time to raise rates at its governing
board's regular bimonthly meeting, ECB president Wim Duisenberg hinted that
a rate hike was likely soon.
The euro's slump raised inflation worries
because it makes imported goods more expensive in the 11 European nations that
use the currency.
"Developments in the exchange rate of the euro
remain a cause for concern," said Duisenberg. "Their upward impact on
import prices is having a negative effect on the price climate and is thereby
increasing the risks to price stability."
In other trading, the
dollar rose against the yen after more expressions of concern about the high yen
from a Japanese financial official.
"We are concerned that a rapid
strengthening of the yen will have a negative impact on the economy, which is
not desirable," Nobuaki Usui, administrative vice finance minister told a
regular news conference.
The dollar was quoted at 107.83 Japanese yen,
up from 107.12 yen late Wednesday.
Japan's government in recent months
has expressed concern about gains by the yen, as a stronger currency makes exports
more expensive in overseas markets and thus less competitive.
In other
trading, the dollar was quoted at 1.6623 Swiss francs, up from 1.6492, and 1.4560
Canadian dollars, up from 1.4483. The British pound fell to $1.5770 from $1.5868.
Currencies of the countries participating in the euro are no longer traded
separately and are tied to the euro by a fixed rate.
Based on Thursday's
euro rate, the dollar was worth: 2.0240 German marks, up from 2.0063; 6.7883 French
francs, up from 6.7288; and 2,003.80 Italian lire, up from 1,986.22.
Keep
the Pound
by David Sinclair
At the last count, nearly two-thirds of the UK population was reckoned to be opposed
to Britain's joining the European single currency. But there is no shortage of
political heavyweights who warn us of dire consequences if we do not embrace the
Euro. Leading Tories such as Kenneth Clarke and Michael Heseltine recently shared
a pro-Euro platform with Tony Blair, Foreign Secretary Robin Cook is a supporter
of the new currency, and adopting the Euro is the unequivocal policy of the Liberal
Democrats.
The Europhiles
say Britain's economic future could be seriously damaged if we do not give up
the Pound in the way the Germans have sacrificed their Mark and the French their
Franc. We would not, they claim, share in the benefits of a strong European currency
that might challenge the supremacy of the US dollar and we would risk being isolated
from developments in the global marketplace.
In the year since the Euro first appeared, however, there is little evidence that
Britain's refusal to join the 11 other European Union nations that opted for the
currency has done us any harm. In fact, the poor performance of the Euro against
the Pound on foreign exchange markets suggests that the UK - while not the world
economic power it once was - still has more than enough clout to make its presence
felt.
We are, after all,
the world's fifth largest economy, which gives us a seat at the top table at international
economic forums. We are still the world leader in global banking and foreign exchange
trading, and only Japan can beat us in the scale of investment funds under management.
The London Stock Exchange is the third most important such institution and actually
comes first in trading in international equities.
Sterling remains a powerhouse across the globe because Britain is the second largest
overseas investor - to the tune of about £2,000 billion - after the US.
The Pound is also clearly attractive to foreigners because we secure 34 per cent
of annual inward investment into the EU, or more than France and Germany combined.
So what do we have to fear from resolutely sticking with Sterling? Very
little it seems, especially since the governments own figures show that only 12
per cent of our gross domestic product comes from EU sources. To change our currency
for such a small part of our economic activity hardly seems logical - and so far
there is no sign of the Euro making an impact outside the Union. In fact you could
say that the Euro needs the Pound far more than the Pound needs the Euro.
Euro Rebounds on Interest Rate Hike
February
3, 2000 - by Hans Greimel - Frankfurt, Germany (AP) - The
beleaguered euro rebounded sharply after European interest rates were raised one-quarter
percentage point Thursday, but the central bank's president said the weak currency
was just one contributing factor in the inflation-fighting move.
The euro climbed to 98.95 cents in late trading Thursday in New York from 97.57
cents Wednesday and the record low of 96.68 cents reached during European trading
on Tuesday. The strong bounce came in part because many analysts did not expect
the European Central Bank to act so quickly to raise rates.
Even with its surge, the euro remained nearly 17 percent below the high it reached
on its debut Jan. 4, 1999.
The euro's slide was one of the factors stoking inflation fears because it made
imported goods more expensive to the 11 European nations that share the euro as
a common currency.
But
Wim Duisenberg, the president of the European Central Bank, said there were several
factors behind the decision to raise rates and attempt to cool inflationary pressures.
A recovering economy, higher oil prices and an increase in the amount of money
in circulation, all added to pressures that push up prices.
"Inflation rates are now approaching higher levels than expected earlier,"
Duisenberg warned. "In order to maintain price stability, monetary policy
needs to act in a forward-looking manner."
In response, the bank - which adjusts interest rates in an attempt to keep the
region's economy growing while holding inflation below 2 percent - raised its
main refinancing rate to 3.25 percent.
It was only the second time in the short history of the bank that it raised the
interest it charges commercial banks for buying back short-term securities when
they need cash. The first increase was in November.
Raising interest rates can cool off an overheated economy by making it more expensive
for consumers and businesses to borrow money. But it also has the added effect
of buoying the local currency because it increases returns on investments in euro-denominated
bonds.
The ECB's rate hike
followed a similar move Wednesday by the U.S. Federal Reserve Board. Some economists
said the year-old ECB - which is struggling to establish itself as an independent
financial entity on par with the Fed - wouldn't act so soon to avoid the impression
it is mimicking its American counterpart.
The ECB was not alone Thursday.
The Bank of Canada, saying it was worried about the risk of inflation spreading
from the United States, raised short-term rates one-quarter point. Denmark's central
bank raised one short-term rate 0.30 point and another by one-quarter point. The
Swiss National Bank adopted a half-point increase in a key rate.
While economists and bankers were expecting the European Central Bank to raise
rates, many thought the ECB would hold off until late February or March, saying
Duisenberg hadn't done enough to prepare investors.
But Germany's stock market, the biggest in the euro region, rallied. The DAX index
of the country's 30 biggest companies rose 2.5 percent Thursday, supported mostly
be strong gains in Deutsche Telekom.
Duisenberg insisted he had signaled a rate increase in comment's Monday at a meeting
of European finance ministers in Belgium, when, for the first time, he said that
the euro's weakness was troubling because it threatened to increase inflation.
"This time, no one can say we didn't give indications or warnings that something
was going to happen," he said. "We were afraid to wait because in the
future, we could have been forced to do more than we're currently doing."
Economists said the rate hike of only a quarter point is a departure from the
ECB's previous two adjustments - once when it cut rates by half a point, and again
when rates rose last fall.
"The ECB seems to be now resorting to a fine-tuning the economy, trying to
get better control with smaller rate moves," said Peter Dixon, an economist
with Commmerzbank in Frankfurt.
Dixon also expects the higher interest rate to have little long-term affect on
the value of the euro.
"The weakness of the euro is a function of the strength of the U.S. economy,
not a function of how weak the European economy is," Dixon said. "The
fundamental growth of the European economy is actually quite good, and this rate
hike has been expected so long, it could have no impact on the currency."
In the countries using the euro, the economy is expected to grow around 3 percent
this year.
Duisenberg remained
optimistic about the euro's ability to rebound, saying it was closely tied with
Europe's fragile recovery.
"Of course we are being influenced by the startling and continued high rate
of growth in the United States that underscores the strength of the dollar compared
with the euro," he said. "But we are rapidly coming in step with the
U.S. economy and that should affect exchange rates as well. A strong economy goes
along with a strong currency."
Bank
Chief Satisfied With Euro
January 30, 2000
- London (AP) - Despite the euro hitting record lows against
the dollar, European Central Bank chief Wim Duisenberg said Sunday he is satisfied
with the performance of Europe's single currency because it has delivered stable
prices.
"Our main
purpose is to deliver a climate of stable prices, and that is what we have done,
and what we have achieved," Duisenberg said in a British Broadcasting Corp.
television interview.
"That
the exchange rate has fallen somewhat is of course of much less significance now,
for the euro area in total, than it was in the past for the individual countries
because foreign trade, imports or exports, only represents about 16 to 17 percent
of the euro area GDP," he added.
The euro has fallen 14 percent against the dollar since it was adopted by 11 of
the 15 member-nations of the European Union, including France and Germany, in
January last year.
On Friday,
the euro hit 97.62 cents, slumping to a record low for the second straight day
after stronger than expected economic growth was reported in the United States.
Duisenberg said that compared with 1997-98, the euro had only fallen 5 or 6 percent
against the dollar and that was because Europe was emerging from recession while
U.S. growth continued at a "surprisingly fast pace."
"The divergence in economic development is already disappearing and it will
disappear totally, in our expectation. And then the euro will show its strength,"
said Duisenberg. "We do believe, we honestly believe, that the euro has a
potential to increase its value."
French Finance Minister Christian Sautter said Saturday he hopes currency markets
will soon take notice of economic recovery in the 11 countries that have switched
to the euro. That performance "isn't perceived sufficiently," he told
executives and politicians gathered here.
"Sooner or later, it should return to a level that is compatible with the
strength of the euro zone," Sautter said.
Duisenberg said British membership of the euro was years away because of differences
between the British and continental European economies.
"I mean if ever the United Kingdom were to decide to join, you are talking
about a moment in time which is years from today," said Duisenberg.
He said he believed it would be in Britain's interests to adopt the euro, "but
it is up to the people of Britain to come to the same conclusion."
British Prime Minister Tony Blair's Labor Party government says it will decide
in principle whether to adopt the euro soon after national elections which must
be held by 2002.
Euro Nudges Below One Dollar
by
Svea Herbst-Bayliss, December 2, 1999
NEW YORK
(Reuters) - Europe's single currency dropped below one U.S.
dollar on Thursday for the first time ever, bruising Europe's pride but inflicting
no serious political or economic damage, analysts said.
Dealers, itching
for weeks to test the psychologically key $1.00 level, finally pushed the euro
as low as $0.9997 in late afternoon New York trade, down more than 15 percent
from its launch at $1.1740 on January 4.
U.S. traders stayed long past
quitting time and shouts erupted in dealing rooms as screens flashed the magic
number, but then they quickly bid the euro back above the dollar.
"We've
touched parity. It has been done. The historic day has passed," said FleetBoston
currency analyst Paul Podolsky.
There was no specific reason why parity
was breached on Thursday, dealers said.
A host of nagging concerns have
dogged the euro for weeks and the final blow came as investors stepped up the
shift of funds into U.S. assets, trying the risk from any Year 2000 computer problems,
dealers and analysts said.
Investors have long complained about Europe's
patchy economic recovery and political leaders' reluctance to tackle tough corporate
reforms, and lack of signs these issues were being addressed caused a relentless
slide in the euro.
Although much hyped, the round number of $1.00 does
not signal major economic problems, much less endanger the 11-month old currency's
life, analysts said.
"This reflects the malaise that currently persists
across the European economy," said Tim Fox, currency strategist at Standard
Chartered Bank. "But it cannot necessarily be called a vote of no-confidence
in the concept of a single currency."
In fact many strategists,
agreeing with European leaders who have long said the euro has room to appreciate,
now see this as merely clearing the way for the currency to eventually rebound.
"Breaking below parity is like topping 10,000 on the Dow Jones Industrial
Average. It is like the year 2000. It is just another number," Barclays Capital
senior economist Henry Willmore said.
The euro may yet drop to 97 cents
before year-end as traders cut their losses, but Chase Securities economist Chris
Widness expects the losses "to be reversed in fairly short order" when
the dollar is likely "to begin a longer term weakening."
Few
official voices were heard immediately after the news. Stanley Fischer, first
Deputy Managing Director of the International Monetary Fund, said "I have
no idea why anyone worries about this," when asked to comment on parity.
In the run-up to its January 1999 launch, the euro was heralded as a symbol
of the economic and political rebirth of a continent ready to challenge America
for global prominence. But in 11 months, the fledgling currency has defied widespread
expectations it would soon rival the dollar as a premier reserve currency. Instead
it has tumbled 15 percent against the dollar and 22 percent against the yen.
Currency traders had tried to reach the psychologically alluring round number
for months, nearly touching it in July and then taking another stab at it in November
as trading activity winds down for the year.
More broadly however, the
euro's year of decline reflects worries about Europe's economic performance as
the U.S. economy continues to steam ahead and Japan stages a smart recovery.
Even European leaders appeared untroubled by the euro's sharp fall, promising
more strong growth in several years which should lift the euro.
Germany's
Chancellor Gerhard Schroeder and France's President Jacques Chirac earlier this
week issued a joint statement saying they were not worried.
The European
Central Bank too seemed to play down the issue, warning it could intervene in
the markets but gave no hints it was willing to do so now.
Even ECB President
Wim Duisenberg on Thursday appeared to agree it is futile to try and change the
market's opinion. "Whatever I say, whatever I do the euro continues its movement
so perhaps I am best advised not to say anything."
And European
Economic Affairs Commissioner Pedro Solbes reminded reporters that the ECB has
no exchange rate policy and "so in a sense parity or not parity is not a
priority."
In fact, many economists said European leaders may welcome
the softer euro as it may fuel the region's recovery by making exports less expensive.
Looking ahead however, analysts agreed with European officials' forecasts
that the euro has room to appreciate.
"We would expect (the euro's
losses) to be reversed in fairly short order and we would expect the dollar to
begin a longer term weakening trend against the euro," said Chase Securities
economist Chris Widness.
Euro
Jumps After IFO; Stocks Still Down
LONDON (Reuters)
- Positive interpretations of Germany's influential IFO
business climate index for June revived the euro but gave only a modest boost
to leading European share indices Tuesday.
The
IFO report, unveiling a west German business climate index up to 92.9 from 90.5
in May, exceeded analysts predictions and lent support to the view that the German
economy will gain momentum in the second half of the year.
Currency markets
reacted swiftly, pushing the euro to $1.0370, it highest this month, against a
background of broad-based dollar weakness.
July 20, 1999
by Naomi Wimborne-Idrissi
How local businesses can go about actually using
the `euro' May 3, 1999 by Charles Dugan
On
Jan. 1, 11 European countries introduced a common currency. The "euro,"
as it is commonly known, is now the legal currency in those countries. The currency
has been successfully launched, despite predictions of colossal failure by critics,
and almost complete disinterest in the United States.
Does U.S. disinterest
mean no impact on American companies doing business in Europe? What opportunities
might this open for U.S. exporters?
There will be important consequences
for U.S. companies doing business in Europe. This is true whether a U.S. company
has local operations in numerous European countries, or simply is exporting from
the United States to one or more markets where the euro is now legal tender.
Although some consequences won't be felt right away, others quickly will
become apparent. By understanding the euro's workings, Capital Region companies
can gain important advantages over competitors who ignore the new landscape. A
little background on the new currency, how it has been introduced and its likely
consequences will enable even the new exporter to deal comfortably with this phenomenon.
Following are some of the consequences for the U.S. exporter:
While the "soft" introduction of the euro has given some the impression
that there will be no impact on U.S. exporters, that may not be the case for long.
The euro likely will:
Increase pressure on U.S. exporters to quote prices
and accept payment in euros for sales to customers located in an "in"
country. This is particularly true if the U.S. company has a significant competitor
located in another "in" country.
Your customer and that competitor
now are using the same currency. Do you want to make it harder for your customer
to deal with you than your competitor? No, of course not. So be prepared to quote
and take payment in the euro.
Force reconsideration of widely divergent
price strategies. Many U.S. companies have different pricing strategies in each
European country. Different prices are a reflection of many things: taxes, distribution
channels, historical factors or just "what the market will bear."
Until the introduction of the euro, fluctuating currency rates provided an
opaqueness that fostered these pricing strategies. With the transparency of a
common currency, some prices may come under pressure.
Does this mean
that your goods must sell at the same price everywhere in the "in" countries?
Of course not. But in the long term, a higher price in one market will have to
be a reflection of higher taxes, transport and other real costs--not just historical
practice.
Accelerate the pace of consolidation among European companies.
Although the introduction of the euro does not erase all trade barriers among
the European Monetary Union members, it does make it easier for the most competitive
companies to increase their market share across the whole market. Your customers
who can't compete may be acquired or leave the industry. This makes it even more
important to develop strong relations with the dominant and most competitive global
or regional players.
It is not difficult to see the euro as an opportunity
rather than a challenge. Here are a few steps you can take to ensure your company
is ready:
Make sure your accounting system can accommodate the new currency.
Most multi-currency packages have added the currency. The symbol is "EUR."
Establish a mechanism to accept payments in euros. This could be a euro denominated
or multi-currency account with your U.S. bank or one of their correspondent banks.
This makes sense if you have significant business in Europe, and particularly
if you also have suppliers in the EMU. There is a cost to maintaining such an
account. If volume is low you may just want to establish a mechanism whereby your
bank will take delivery of euros for your company and convert them to U.S. dollars.
Because the euro is not fixed to the U.S. dollar, ensure you can manage the
exchange risk that will accompany quoting or taking payment in euros. The best
way is to offset euro denominated receipts against euro denominated expenses.
Consider new suppliers in Europe, or even requesting Asian suppliers to quote
and take payments in euros. It is expected that, in the long term, about 35 percent
of world trade will be invoiced in euros.
If you don't have suppliers
to pay in euros, ask your bank to purchase euros from you on a forward basis.
Get an indicative rate at the time you develop your price quote to an EMU customer.
Once you have a firm order with a known amount, specific shipping date and reasonably
certain payment date, the exchange rate can be fixed even if payment is not expected
for months.
Review catalogues and other pricing information, and indicate
that prices in euros are available upon request.
Of course, the euro
in and of itself will not immediately perk up a generally lethargic economic situation
in Europe. Unemployment remains high, growth is slow, and effective economic measures
still need to be developed and implemented. The euro is a currency, a unit of
denomination--not a magic bullet. Nevertheless, a company that can do business
in euros will have a strong advantage in one of the world's richest markets.
Dugan
is vice president of international banking for The Chase Manhattan Bank.
Cracks show in ECB's euro resolve - Some now see intervention
as a possibility Apr 29, 1999
LONDON
(CBS.MW) --After weeks of
watching the euro plummet from its once-lofty highs, there are finally some telltale
signs that the European Central Bank may be ready to stop the currency's fall
with a cash intervention.
Launched amid great fanfare at the start of
the year, the euro has since fallen some 10 percent from its launch-day level
of $1.6675.
Since that time, investors have been watching to see if the
ECB will ride to the euro's support. But Wim Duisenberg, the ECB's president,
has doggedly stood by a policy of benign neglect, saying the euro's weakness was
no big deal.
Until this week. In recent days, officials ranging from
Duisenberg to the French finance minister, Dominique Strauss-Kahn, and Yves-Thibault
de Silguy, the European commissioner for monetary affairs, have weighed in.
On Tuesday, Duisenberg said he would be concerned if the euro continued to
fall in value.
And currency specialists have listened up, saying there's
now a distinct chance the ECB will ride to the rescue if the currency slips to
$1.0500.
That's not far from the levels the currency fell to Thursday,
when it slipped to $1.0577. The euro's record low so far has been $1.0561, which
it hit April 22.
"It looks like the market wants to see whether
the ECB is willing to intervene actively instead of just giving verbal support.
I expect they'd come in at around $1.0500," said Gerd Muller, Frankfurt-based
currency strategist at BHF Bank.
ECB
action would need Fed, Japanese support
If
the ECB does decide to take action, analysts believe it would be well-planned,
decisive action through cash intervention in the market.
"It would
(have to) be coordinated with European central banks and would need Fed and Bank
of Japan support -- otherwise intervention wouldn't be successful. The risks (to
the euro) would be minimal if intervention was set up in the proper way,"
said BHF Bank's Muller.
It's believed the ECB has a minimum of $200 billion
in reserve that it could use to defend the euro. This is about the same as the
Bank of Japan would have to defend the yen and more than the Bank of England could
muster to intervene on behalf of sterling, if it so desired.
Economic weakness, Kosovo drive euro down
Some say the euro's free fall is not really such a surprise. "At the
start of the year, it was too strong," said Peter Von Maydell, London-based
senior currency strategist at Credit Suisse First Boston. "It was beyond
what yield differentials would justify. People bought it because it was shiny
and new. There were no economic reasons to buy it."
With the U.S.
economy continuing to show signs of strength in sharp contrast to weak economies
in the so-called eurozone, euro weakness is likely to continue. Unless the ECB
successfully intervenes, of course. Some say that reduced gross domestic product
forecasts in Europe, and surging U.S. GDP, mean the euro could fall as far as
parity with the greenback.
The Kosovo crisis is also casting a shadow
over the eurozone's fledgling single currency.
The proximity of the Western
European countries to the crisis has encouraged the flight of assets to the United
States. If the Balkan war escalates further, this could magnify.
