Sun, Jul 13, 2003 - Page 10 News List

Euro hits a snag as Schroeder calls for action by the ECB

AFP , LONDON

The euro recoiled on Friday after German Chancellor Gerhard Schroeder issued what dealers saw as a thinly veiled call on the European Central Bank (ECB) to move to curb the strength of the euro.

The single European currency fell to US$1.1303 from US$1.1377 late on Thursday in New York.

The dollar stood at ¥117.81 against ¥117.64 on Thursday.

The euro eased back after Schroeder said in an interview with the Financial Times: "I assume the intelligent people in the leadership of the ECB discuss the question every day of whether they have done enough in the context of the dollar/euro exchange rate to maintain the competitiveness of exports from Europe."

The current strength of the euro was partly responsible for the sluggishness of the German economy as it is hitting the country's exporters, Schroeder added.

"These comments were interpreted by some as an implicit call for ECB action to stem euro strength, prompting the currency to fall against the other majors after the release of the report overnight," said UBS Warburg strategist Shahab Jalinoos.

But in what was taken by some as a rejection of Schroeder's call, the ECB's chief economist, Otmar Issing, told reporters the competitiveness of the German economy "does not just depend on the exchange rate".

This apparent fault line between politicians and central bankers could prove destabilising for the single currency, analysts said.

"We expect euro/dollar to remain under pressure, not because of any danger of intervention, but because ongoing tensions between the ECB and EU governments will likely be damaging for the currency," said BNP Paribas strategists commented.

WestLB strategists said Schroeder's remarks "may mark a turning point in the way politicians respond to the euro strength, and therefore may influence the medium to longer term euro sentiment."

The yen meanwhile lost ground on the threat of intervention by Japanese authorities to support the dollar and on a sharp fall in Tokyo stock prices.

"Intervention fears are increasing," said Kazuhiro Nishina, assistant manager of the foreign exchange division at Aozora Bank in Tokyo.

"The majority of market participants still expect the Japanese authorities to step into the market to weaken the yen."

The euro was changing hands at US$1.1303 from US$1.1377 late on Thursday in New York, ¥133.79 (¥133.79), £0.6927 (£0.6960) and 1.5517 Swiss francs (Sf1.5478).

The dollar was being quoted at ¥117.81 (¥117.64) and 1.3728 Swiss francs (Sf1.3601).

The pound was at US$1.6323 (US$1.6344), ¥192.28 (¥192.27) and 2.2402 Swiss francs (Sf2.2229).

On the London Bullion Market, the price of a single ounce of gold was standing at US$343.70 from US$343.40 on Thursday afternoon.

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