What happens... next year... with an already shaky Euro... public confidence... and rising oil prices?

Diane

Euro hits lowest level against dollar, yen PAUL AMES, Associated Press Writer Friday, November 26, 1999

http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/1999/11/26/international1452EST0626.DTL

[Fair Use: For Educational/Research Purposes Only]

(11-26) 13:33 PST BRUSSELS, Belgium (AP) -- The euro slumped to its lowest level to date against the dollar and the yen Friday despite brighter news on Europe's economic prospects and efforts by central bankers to talk up the infant European currency.

In European trading, the euro fell to $1.007, down from its previous low of $1.0108 in July and a 15 percent drop from peak reached on the euro's market debut on Jan. 4. Against the yen, the euro skidded to 104.70, the latest in a series of all-time lows.

In trading in New York, the euro crept back up to $1.0156, but it seemed only matter of time before the shared European currency fell below the $1 benchmark for the first time.

``We're getting so close to parity, speculators are finding it too hard to resist,'' said Jeremy Hawkins, chief economist at Bank of America in London.

The euro's slump will cloud Monday's regular meeting of European Union finance ministers. But despite the symbolism of the looming fall below dollar-parity, EU officials insisted the currency's tumble was no cause for undue concern.

``It is the strength of the dollar rather than the weakness of the euro that has caused this,'' said EU finance spokesman Gerassimos Thomas. ``We see the euro-zone fundamentals as remaining strong.''

The favorable exchange rates have proved a boon to tourists visiting from the United States and Japan as well as investors seeking to take advantage of Europe's telecommunications and technology boom that has pushed regional markets in London, Paris, Amsterdam and Madrid to record levels.

Nonetheless, the euro's precipitous fall threw a dampener over the upbeat mood induced by Wednesday's forecast by the European Commission that the 11-nation euro-zone's economy would grow 2.9 percent next year and outpace U.S. growth after a decade of playing catchup.

Traders appeared unconvinced by the EU's rosy forecast, especially since the recovery in core nations Germany and Italy remained decidedly sluggish.

The EU forecasts pegged German growth at just 1.5 percent this year, growing to 2.6 in 2000 -- news that is encouraging, but hardly on a par with the U.S. surge. The Commerce Department in Washington announced a third-quarter spurt producing an annual growth rate of 5.5 percent.

Other news from Germany was blamed for chipping away at confidence in the euro over the past few days.

Political opposition to the takeover bid for teleommunications company Mannesmann AG by Britain's Vodafone AirTouch PLC, and the government's plans to bail out ailing construction giant Philipp Holzmann AG, has cast doubt on the pro-market credentials of Chancellor Gerhard Schroeder.

There are also lingering doubts over European business' Y2K readiness.

Some were brushing off the euro's fall as a boon to exports that will help Europe's tentative recovery while inflation remains low.

``What's important is not the external value of the euro, but the internal. Inflation is quite low,'' said Alexander Mollerus, an economist at ANB-AMRO in Amsterdam. ``It seems to be working ... The euro will bounce back.''

Others have more doubts, fearing a weak currency combined with rocketing oil prices is raising the specter of inflation. ``It's happening at a time when oil prices are going through the roof,'' said the BofA's Hawkins. ``Upcoming inflation figures are going to look pretty horrible.''

All of this will pressure the European Central Bank into raising rates again, further restraining growth, he added. ``The ECB is caught between a rock and a hard place.''

European Central Bank President Wim Duisenberg told London's Financial Times he was less concerned about its impact of the euro's fall on the economy than on Europe's public opinion, already wary about replacing their trusted marks, francs and guilders with the euro.

``A further movement in this direction would contribute to undermining the confidence in the euro as such of the public at large. Unjustified, but still it is a public perception,'' Duisenberg said.

-- Diane J. Squire (sacredspaces@yahoo.com), November 28, 1999

Answers

``It is the strength of the dollar rather than the weakness of the euro that has caused this,'' said EU finance spokesman Gerassimos Thomas.

"As you know, the Americans have done away with several impediments to a strong dollar quite recently," Thomas continued "They have eliminated inflation altogether, found a way to ignore skyrocketing commodity prices, and inflate stock values at the same time." Thomas feels the Americans may be on to something with their treatment of credit markets as well;"..they have this new technique called 'Al.dotcom liquidity injections' which is really quite unique. Whilst making noises about tightening and overvaluation one takes the biggest financial syringe one can find and gives the markets a solid overdose of liquidity through such devices as coupon passes, special facilities and the like. That way, one can truly appear to have the situation under control."

Thomas denied that the sudden new found strength of the dollar could have anything to do with the mythical Y2K flight to quality....

Duh....bubble....building now.....gonna pop soon here kids...

-- Gordon (g_gecko_69@hotmail.com), November 28, 1999.

Can someone tell me what factors determine the variation in the exchange rates ?

I know that the speculators who do the trading must have some news that makes them think they can profit from the trade. It has to be more than interest rates and trade deficits, because these don't change daily.

-- HERB (herb01@prodigy.net), November 28, 1999.