BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
 You are in: Business  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
E-Commerce
Economy
Market Data
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
Wednesday, 26 June, 2002, 21:01 GMT 22:01 UK
Euro rises near to parity with dollar
Wim Duisenberg
The euro: Growing in stature on the world stage?
The euro has neared parity with the dollar, as the WorldCom scandal dealt another blow to the greenback.

The euro surged 1.5% in early trade on Wednesday to a 28-month high of $0.9944, after WorldCom's admission of accounting fraud trashed investor confidence in the US.


The dollar is no longer seen as a safe-haven currency

Avinash Persaud
State Street
"There's a lack of confidence in the dollar and US assets after the WorldCom debacle," said Russell Jones, head of foreign exchange research at Lehman Brothers.

"There's no sense the dollar's downward trend is ending. People are just wondering what the next problem will be."

But the dollar nonetheless staged a rally as investors worst fears of a rout in US shares failed to materialise.

The euro stood at $0.9811 at 2000 GMT, regaining most of the day's losses.

Rise and fall

At Wednesday's low, the dollar, which has seen its revered reputation challenged, had shed more than 7% in one month.

A year ago the greenback was viewed as a quality investment haven in times of global economic uncertainty.


Greater international credibility would shore up public enthusiasm for the euro at home

Neil MacKinnon
ECU Chief Economist

But the collapse of Enron amid accounting fears and the widespread revision by firms of accounts since its demise have hit confidence in the dollar.

Such a fast decline in a currency would normally be viewed itself as a matter of economic concern, raising fears about the rising cost of imports, increases typically seen as threatening a rise in inflation.

And analysts have warned that long-term damage to the dollar's standing could affect its status as the dominant currency for global commodities trading and for central bank reserves.

Trades in commodities such as oil and gold are always struck in dollars, while about half of all global central bank reserves are held in the currency.

"The dollar is no longer seen as a safe-haven currency," said Avinash Persaud, head of global research at State Street.

European glee?

But US President George W Bush has so far appeared relaxed about the dollar's plight.

"The dollar will seek its level based upon market forces, and based on whether or not our country can rein in spending, can recover, can revitalise our manufacturing base," Mr Bush said on Tuesday.

And European leaders are believed privately to be welcoming a change which could boost the euro's status as a global currency.

"There is no doubt that European politicians would like to see the euro challenge the dollar as a reserve currency," said Neil MacKinnon, chief economist at currency debt management group ECU.

"The euro is a political project and greater international credibility would shore up public enthusiasm for the euro at home."

Economic effects

While the stability of the eurozone economy too could be threatened by the sharp increase in the euro's value, which will render exports more expensive, economists have eased fears over the rise.

"Exports will fall, but... this will be compensated by the cheaper imports," said Beat Schumacher, senior economist at Credit Suisse.

Economists at Germany's federal banking association said the rise of the euro would ease pressure on the European Central Bank to raise eurozone interest rates.

 WATCH/LISTEN
 ON THIS STORY
Hilary Cooke, Barclays Stockbrokers
"The dollar's been looking over-valued for some time"
WorldCom

Latest news

Analysis

Background

AUDIO VIDEO

TALKING POINT
See also:

26 Jun 02 | Business
26 Jun 02 | Business
24 Jun 02 | Business
24 Jun 02 | Business
21 Jun 02 | Business
Internet links:


The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.


E-mail this story to a friend

Links to more Business stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes