Euro Flirts With Another High Vs. Dollar

Monday, December 6th 2004, 9:50 am
By: News On 6

BERLIN (AP) _ The euro flirted with another record high Monday against the dollar as concerns over the U.S. trade and budget deficits and worse-than-expected U.S. employment data kept up pressure on the currency.

The euro was as high as $1.3456 before falling slightly later in the day, above the $1.3452 it traded at in New York late Friday after it pushed as high as $1.3460 _ its highest level in the five years since it was launched.

Since September, the shared European currency has spiked from around $1.20 over persistent worries about the U.S. deficits and signals from the Bush administration that it would not step in to support the dollar.

It broke the $1.34 mark for the first time Friday when U.S. employment data came in weaker than expected, and the strength Monday seems to be the continued effect of that news combined with an overall negative sentiment toward the dollar, said DZ Bank economist Dorothea Huttanus in Frankfurt.

``The trend is your friend, that's the only force that drives markets,'' she said. ``We really don't need any further incentive for the euro to climb higher. It's for the most part sentiment-driven and, of course, the bad numbers from Friday are still at work.''

The dollar was trading at 102.45 Japanese yen, compared with 102.09 yen late Friday in New York.

The 12-nation euro initially fell against the dollar after its 1999 debut, but it has risen about 63 percent since bottoming out at 82 U.S. cents in October 2000.

Dollar weakness has been bringing short-term benefits to the United States, making American exports cheaper in the rest of the world. That has given U.S. President George W. Bush little incentive to step in, although the administration still says it has a ``strong dollar policy.''

It has the opposite effect on European exports, making products like German sports cars or French wines more expensive for the American consumer, or cutting in to producers' profits as they try to hold the prices steady.

European leaders have started to fret that the rapid rise of the euro will hurt their fragile export-driven economic recovery, and European Central Bank President Jean-Claude Trichet has called the currency's steep climb ``brutal'' and ``unwelcome.''

Axel Weber, president of Germany's central bank, the Bundesbank, reiterated that line Monday, calling the surge ``unwelcome'' at a Frankfurt conference on interest rates, Dow Jones Newswires reported.

German Economics and Labor Minister Wolfgang Clement also showed concern, telling Dow Jones the euro's rising strength ``has a certain impact.''

``The development isn't without problems,'' he said.

Huttanus said she would expect more so-called ``verbal intervention'' from Trichet before he makes any kind of move to try and prop up the U.S. currency by buying dollars.

``The first thing Trichet needs is support from his colleagues _ if only the head of the ECB says he doesn't welcome this, it's not enough,'' she said. ``We have to have a choir of all the ECB talking together, and only if this doesn't work will we have an intervention.''

Clement said he expects the ECB to be paying close attention to the euro's level.

``We expect that the monetary policy is watching this, and will act if necessary,'' he said.