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Last Updated: Tuesday, 27 May, 2003, 20:42 GMT 21:42 UK
Euro hits all-time high
The euro has hit a record high against the dollar of $1.1932, passing the peaks reached just after its launch in January 1999.

Analysts said the rise was caused by demand for eurozone government bonds and a lack of objection to the euro's rise by the European Central Bank (ECB).

"If you take into account the balance of statements from ECB officials, it's very much in favour of the current level of the euro, and that's giving support to investors to buy it on dips," said Paul Mackel, a currency strategist at Dresdner Kleinwort Wasserstein.

The euro dropped back to $1.1830 in late US trade as the dollar staged a mild comeback.

"People are taking a breather on the dollar selling, with a little profit-taking against the euro and yen after making the new highs on the data this morning," said Russell LaScala, chief spot dealer at Deutsche Bank in New York.

Rate cut talk

The euro has also been underpinned by recent signs that the US government may be relaxing its traditional commitment to a strong dollar in an effort at kick-starting an export-led recovery.

The eurozone's higher interest rate - at 2.5% compared with just 1.25% in the US - has given investors an added incentive to hold euros rather than dollars.

But the euro's rise has been checked slightly by reports that the ECB may be preparing the ground for an interest rate cut.

However, analysts said similar action by the US Federal Reserve could leave the long-term situation unchanged.

"If you take into account that the Fed is expected to do the same a few weeks later, then the net effect is really zero," Mr Mackel said.

'Comfortable' level

ECB deputy president Lucas Papademos told reporters late on Monday that the stronger euro had curbed inflationary pressures.

"If we think that we can reach our mid-term objective with a sufficient safety margin, then it could be possible to change the stance of monetary policy to counterweight the forces that lead to a subdued economy," he added.

ECB board member Ernst Welteke has previously said he is comfortable with the euro's current strength, while acknowledging that makes the business climate more difficult.

A stronger euro means European exports become less competitive, while a lower dollar helps US exporters by making their goods cheaper abroad.

The European single currency was worth $1.1665 when it was launched on 1 January 1999 and soared to $1.1889 by 4 January, before beginning a long slide to a low of $0.8230 on 26 October 2000.

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08 May 03  |  Business

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