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EDITIONS
Friday, 1 November, 2002, 15:16 GMT
Euro breaks $1 barrier
Dollar bill
The dollar is no longer so attractive to investors
The single European currency has broken through parity with the dollar for the first time in three months, following worries over the health of the US economy.

One euro was worth $1.0003 at about 1450 GMT on Friday, as currency traders fretted over weak US consumer spending, unemployment figures and a struggling manufacturing sector.

The euro later fell back below parity to trade at about $0.99.

The euro's rally builds upon initial gains in late July, when fears over the ballooning US trade deficit propelled the single currency above $1 for the first time since February 2000.

It has traded slightly below parity since then.

Depreciation

The single currency was worth about $1.20 when it was launched as a tradable currency on 1 January 1999, but lost more than a fifth of its value over the next two years in response to sluggish eurozone growth.

A stronger euro makes eurozone exports more expensive and therefore less competitive on world markets.

But a strong euro also reduces the price of imports, helping to curb inflation.

The currency's gradual appreciation against the dollar reflects signs that the US economy may be weakening, making dollar-denominated US assets less attractive to investors.

US hit

Friday's rally came on the back of figures showing that US unemployment rose to 5.7% in October from 5.6% the previous month.

The bad news from the jobs market coincided with a report from the Institute for Supply Management (ISM) showing a shrinking manufacturing industry.

The closely watched ISM factory index showed a fall from 49.5 in September to 48.5 in October.

Any reading below 50 indicates shrinkage in the industry.

And further concerns arose after the US Commerce Department reported an 0.4% decline in consumer spending during September, the largest fall in 10 months.

But analysts believe that the euro's gains could be short-lived, and will be limited by the eurozone's own economic problems.

See also:

31 Oct 02 | Business
15 Jul 02 | Business
28 Jun 02 | Business
23 May 02 | Business
22 May 02 | Business
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