Posted at 7:08 a.m. PDT Monday, September 18, 2000 US curveball seen worsening euro's plight

LONDON, Sept 18 (Reuters) - Kicking the euro when it is down has become a habit for foreign exchange traders but the pastime now appears to be spreading to policy makers, further cutting the odds of an international rescue effort for the currency.

The latest blow, which drove the euro to record lows against the dollar on Monday, was delivered by Federal Reserve Bank of Richmond President Alfred Broaddus, who said towards the end of last week its fall raised questions about its long-term viability.

Swiss National Bank chief Hans Meyer also chimed in at the weekend, highlighting the risk that the euro's protracted fall could do enough damange to international confidence to become a self-fulfilling prophesy.

Dealers do not expect a monetary union which has been decades in the making to unravel as a result of a 20-month slide in the euro's exchange rate, even though its record lows are equivalent to the German mark's weakest since the mid-1980s.

But nor are they willing to buy the official European line that the euro is due for a sharp rebound at a time when other policymakers are sounding such warnings.

``Traders look at any official comment and extract the worst possible spin out of it as far as the euro is concerned, but in this case they didn't have to look too far,'' said Mark Cliffe, chief economist at ING Barings in London.

``It is not a deliberate plot to weaken the euro but for a U.S. policymaker to put into play the idea the project could collapse is not helpful, to say the least. It just underlines that the U.S. is unlikely to come to the euro's rescue.'' Cliffe said the euro could easily fall to $0.83, about two cents below the record lows it has already hit, and added he saw no obvious stopping point for the currency before $0.80.

DEALERS DON'T MAKE QUANTUM LEAPS

Currency analysts said that while there was no sign of an end to the euro's lifelong decline, it would be a quantum leap to say that the single currency project was therefore not viable.

For one thing, it was only five years ago, that the dollar was hitting record lows against the European currencies which have since been subsumed into the euro.

That said, analysts added that the foreign exchanges' verdict on the single currency project could not be ignored, not least because it meant that international investors would demand higher returns to hold euro-denominated assets.

``Any currency can survive, but the question is at what price,'' said Paul Chertkow, head of global research at Bank of Tokyo-Mitsubishi in London.

``The euro is not going to be abandonned by its participants but it is clear the euro is not the hard currency it was intended to be.''

The single currency has shed 27 percent against the dollar and more than 31 percent against the yen since its January 1999 launch. Chertkow said it now risked falling to $0.80 before the end of the September.

U.S. CENTRAL BANKERS NOT DEVIOUS

Such bearishness was fuelled as currency traders dismissed conspiracy theories suggesting the United States was laying one of the most cunningly disguised bear traps in recent history.

They are betting U.S. policymakers are not so devious and just saying what they think of the euro's protracted slide. That is expected to make it harder for euro zone officials to emulate U.S. success at marketing its currency -- something French Finance Minister Laurent Fabius said on Friday the 11-nation region needed to be better at. It is also undermining attempts by European officials, like Bundesbank President Ernst Welteke, to conjure up the threat of joint action by saying the Group of Seven major powers will discuss currencies at their impending meeting. The European Central Bank could always intervene on its own, but traders said this would have give the euro less of a lasting boost than joint intervention could.

This view was reinforced for having seen the euro hit record lows even after the ECB last week surprised them by saying it was selling all the interest income earned on its foreign exchange reserves since January 1999 in one fell swoop.

``The market is getting sick of hearing the ECB say that intervention is one of the tools in its armoury and not do anything and I see no reason for this currency to go up unless they intervene,'' said John Glover, managing director of foreign exchange at Toronto-Dominion in London.

``The euro would go up if it was just the ECB interevening, but to keep it up would require joint intervention and given the comments we have had, that just doesn't look likely.''

http://www.mercurycenter.com/breaking/docs/033163.htm

-- Carl Jenkins (Somewherepress@aol.com), September 18, 2000

Answers

If Europe feels the U.S. is plotting or carrying out a currency war, we should be cautious. It's my oppinion they could do more dammage to our economy, then we could do to theirs. with high cost fuel, high debt, and low gold in the US, europe could solve her currency and competition problems in one short feld swoop. Lee Blocher

-- Lee Blocher (cblocher@northernway.net), September 21, 2000.