Dollar soars as Europe slows

Eurozone output refuses to rebound

The euro has hit four-month lows against the dollar, as dismal European economic data contrasts with optimism in the United States.

The European single currency traded below $1.11 for the first time since April, as traders swapped their money into dollars in response to a buoyant US stock market.

The euro has lost 7% of its value against the dollar since June, partially reversing a sustained 33% increase since early last year.

The cooling of the euro - which is being welcomed by policy makers on both sides of the Atlantic - reflects the widening divergence between the economies of Europe and the US.

While the US is at last starting to perform strongly, the eurozone shows few signs of getting out of its current stagnation: Italy and Germany were officially declared in recession last week, and new figures show eurozone industrial production in June was down 1.6% year on year.

Ups and downs

Inflation in the eurozone has also slowed sharply, and fell unexpectedly to 1.9% in June.

This indicates the sluggish state of Europe's economies, and makes further interest-rate cuts from the European Central Bank more likely - another factor that has depressed the euro.

US stock markets, which hit a 14-month high on Monday, have also outperformed Europe, drawing global investment capital over to Wall Street.

And the US economy, which had until recently also seemed reluctant to take off, is now accelerating.

Construction of new homes, for example, rose at its fastest pace in July for almost 20 years.

Dollar delight

The resurgent dollar will please governments all over the world.

Manufacturers in Europe and Asia had become concerned that the weak dollar undermined their competitiveness.

The Japanese central bank, for instance, has intervened repeatedly to push down the yen.

In the US, meanwhile, the government was coming under pressure for apparently having abandoned its strong-dollar policy.