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Friday, 6 July, 2001, 17:07 GMT 18:07 UK
Euro recovers ground
ECB President Wim Duisenberg
Wim Duisenberg: Baffled by the weakness of the euro
The euro clawed back some ground against the dollar on Friday after hitting its lowest point so far this year a day earlier.

The gains came as the soaring dollar took a breather in the wake of weaker-than-expected US jobs data.

Market caution ahead of a weekend meeting of finance ministers of the Group of Seven (G7) leading industrialized nations gave the euro an added boost, helping Europe's single currency claw back more than a cent from eight-month lows.

I remain convinced that the euro has indeed a strong potential to appreciate

Wim Duisenberg
The euro fell to $0.8357 on Thursday, from a session high of $0.8479.

The slide was prompted by the European Central Bank's decision to leave eurozone interest rates unchanged for a second month.

But by Friday afternoon it had surged above $0.84 cents again.

Launched at $1.17 in January 1999, the euro hit a historic low of $0.8230 last October.

Inflation fears

The decision not to raise interest rates caused investors to be nervous about the outlook for the eurozone economy and then sell off the euro.

Although the US is also suffering from an economic slowdown, investors have turned to the dollar as a safe haven during the global difficulties.<
The ECB building in Frankfurt
The ECB wants to fight inflation, not boost growth
Mr Duisenberg has repeatedly signalled his reluctance to tinker with eurozone interest rates in the hope of stimulating growth.

The bank is trying to balance the pressures of a slowing economy against the threat of soaring inflation.

In an address to the European Parliament on Tuesday, Mr Duisenberg said the bank had no reason to change its view that its current benchmark interest rate was appropriate.

At a press conference on Thursday the bank's head admitted that he was baffled by the weakness of the euro.

"I cannot explain fully the level of the euro...all the factors explaining the depreciation of the euro seem to have reversed, but this hasn't had an impact on the euro exchange rate yet," said Mr Duisenberg.

"But I remain convinced that the euro has indeed a strong potential to appreciate," he added.

Standing firm

The ECB's main refinancing rate remains at 4.5%.

The bank had faced heavy pressure to cut rates, in the light of the softer economic outlook across Europe.

But in the weeks leading up to the meeting, European monetary officials repeatedly stressed their opposition to a cut purely aimed at stimulating economic growth.

Less than an hour before the ECB unveiled its decision, the Bank of England said it would also not be lowering rates in the UK.

Under pressure

Pressure for a cut has been mounting since the US Federal Reserve lowered interest rates last week - its sixth successive cut this year.

The eurozone has been hit by waves of gloomy economic data - in particular, growing indications of a serious slowdown in Germany, Europe's biggest economy.

German unemployment figures for June released on Thursday showed a seasonally-adjusted rise of 22,000, the sixth consecutive monthly increase.

Consumer and business confidence throughout Europe has also fallen sharply, according to a number of country surveys.

And the European Commission said on Tuesday that its economic sentiment index for the euro area fell to 101.1 in June from 101.8 in May, its sixth consecutive monthly slide.

US jobs figures

The US Labour Department reported Friday that 114,000 jobs were lost in the country's economy in June and the unemployment rate rose 0.1% points to 4.5%.

But the department also revised its May figures to show job growth instead of a decline. It said nonfarm payrolls rose a revised 8,000 in May instead of the initial estimate of a fall of 19,000.

The sharp decline in manufacturing employment was the major factor in the payroll decline.

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See also:

05 Jul 01 | Business
UK interest rates unchanged
05 Jul 01 | Business
UK and euro rate decisions loom
28 Jun 01 | Business
Europe defies calls for rate cut
27 Jun 01 | Business
ECB defends rate inaction
14 Jun 01 | Business
ECB downgrades European growth
05 Jul 01 | Business
European interest rates held steady
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