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Monday, 15 July, 2002, 16:29 GMT 17:29 UK
Q&A: Dollar down, euro up
After a couple of uncertain weeks hovering around the 98 US cent mark, the euro has finally broken through parity with the dollar.

BBC News Online looks at the wider implications.

So the euro's now stronger than the dollar. Why should it bother me?

It's more a case of dollar weakness than euro strength.

Worries about corporate scandals in the US are combining with some pretty unsettling economic figures - sliding consumer confidence, for instance - to make the US look like a less attractive place to invest.

This has happened at a time when US economic dependence on sustained investment flows from abroad is running at an all-time high.

Take it away, and the economy - and the dollar - start suffering.

And if the dollar is on the way down, its status as the yardstick for everyone else means that it's not just the euro that goes up. The pound is rising against the dollar as well, along with the yen and a number of other currencies.

Everyone likes a strong currency, and my holiday in Florida is going to get cheaper, isn't it?

True. And it's not only holidaymakers in the US - or anyone else heading there - who will benefit.

In theory, US goods exported for sale elsewhere will get cheaper too - both for businesses and consumers.

There's a catch, isn't there?

Of course there is.

Any businesses relying on US tourists, for example, could lose some custom as the rest of the world starts to feel a bit more expensive than it did.

The same rules apply for exporters. It was tough enough for, say, UK manufacturers to sell to the rest of the world because the pound was too strong.

Now the same rules are going to apply in the US - possibly just as consumers there become reluctant to spend. Worrying for the companies, and definitely worrying in terms of potential job losses.

For European manufacturers, the weakness of the euro has been a blessing in a very thin disguise.

Export-dependent economies such as Germany's, already overburdened with unemployment, have not been looking forward to using that advantage.

And in Japan it couldn't be worse.

The weakness of the yen has been a huge boon to exporters, so unsurprisingly the relentless slide of the dollar in recent weeks has them running scared.

Not exactly a silver lining, is it?

Not as such - but there are two groups of people who might be quietly cheerful about the situation.

The first is the European Central Bank, whose officials have frequently insisted that the euro's weakness is not structural.

The other crowd for whom the euro's climb may be worth a cheer are the UK's Europhiles, who will be quick to thumb their noses at the sceptics.

A recent newspaper advert quoted a handful of nay-saying commentators whose recent contributions to the debate had included the "weak euro" argument in what was, in effect, a massive "I told you so".

See also:

15 Jul 02 | Business
12 Jul 02 | Business
07 Jul 02 | Politics
15 Jul 02 | Business
22 May 02 | Business
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