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Weak or strong, euro still unloved

(AFP)
Filed on January 1, 2008

BRUSSELS - When the newly created euro slumped to an all-time low in 2000, detractors lined up to predict a dark future for the young currency.


The euro marks its ninth birthday on January 1, with detractors now warning of grave consequences on account of its strength.

The single European currency has appreciated almost 10.5 percent against the dollar since the start of 2007, surging at one point to within reach of 1.50 dollars.

At the end of December, the dollar managed to revive somewhat on speculation among investors that in the face of increased inflationary pressure, the US Federal Reserve will refrain from another cut in interest rates when its policymakers convene January 31.

A further reduction in US rates would make the dollar even less attractive to investors, weakening it further against the euro.

The euro had risen back above 1.47 dollars Friday amid persistent speculation that more poor US economic data could force the US Federal Reserve to cut interest rates early in 2008, dealers said.

The dollar bounced higher Monday, the last day of the year, apparently boosted by news of the first rise in US existing home sales, in November, for eight months.

The euro fell to 1.4585 dollars around 2200 GMT from 1.4724 dollars in New York late on Friday. The single European currency had hit an all-time high of 1.4967 dollars just last month.

Although the euro’s ascent has helped soften the blow of soaring, dollar-denominated oil prices for consumers, it is pinching European exporters by making their products less competitive on international markets.

The aerospace industry, with costs largely in euros but sales outside Europe in dollars, is suffering in particular and threatening to shift some production to dollar zones in order to cope.

“The only way to prepare the company for a dollar that no one can control is -- unfortunately -- to set up shop in a dollar zone,” Louis Gallois, the chief executive of the EADS European aerospace giant, said recently.

But in the 13-nation eurozone as a whole, there was an unexpected improvement in the trade surplus in October that occurred despite the euro’s strength.

The October figure jumped to 6.1 billion euros (8.78 billion dollars) from 3.7 billion euros in September. Analysts had expected an October surplus of just 2.9 billion euros.





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