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Last Updated: Monday, 5 January, 2004, 06:18 GMT
The fall and rise of the euro
Launch of the euroEuro reaches record highECB cuts interest ratesEuro cash launchedGeorge Bush becomes presidentCentral banks intervene to prop up the euroLaunch of the euro

A guide to the turbulent early history of the euro, the single currency that has been adopted by the twelve nations of the eurozone - France, Germany, Greece, Italy, Spain, Portugal, the Netherlands, Belgium, Luxembourg, Ireland, Austria and Finland.

January 1999: Launch of the euro
The euro was launched as an electronic currency in 1999 for use by banks, stockbrokers, and foreign exchange dealers.

The exchange rate of the local currencies like the franc and the deutschemark in relation to the euro was fixed at that time.

The euro immediately began to fall on international currency markets, unable to compete with the attractions of the dollar, boosted by a booming US stockmarket and economy.

Uncertainty over the role of the European Central Bank, which was now setting interest rates in the eurozone, and its policy towards the weak euro, also unsettled markets.

September 2000: Central banks intervene to prop up euro
Wim Duisenberg
The European Central Bank finally asked for help from other banks to help boost the value of the euro after it touched a record low of $0.84.

The intervention occurred as the world's bankers were gathering in Prague for an international meeting.

But the ECB president, Wim Duisenberg, appeared to undermine that intervention when he said that he did not expect the exercise to be repeated.

Nevertheless, the euro did bottom out in 2000.

January 2001: Bush becomes US president

President Bush
The president will visit for three days
The administration of President George W Bush faced the prospect of a US recession soon after taking office.

And so, while it officially repeated the mantra that it favoured a strong dollar, officials like Treasury Secretary Paul O'Neill made it clear that they would let market forces decide which direction the dollar moved.

And the 13 interest rate cuts by the US central bank, the Federal Reserve, made investors lesss likely to move more money into US markets as interest rates were higher elsewhere.

As a result, the euro stablised, and then began rising, against the dollar.

January 2002: Euro becomes cash currency

The launch of the euro as a cash currency used by the 300 million citizens of the eurozone went smoothly.

Within weeks, nearly everyone was using the new banknotes and coins.

Meanwhile, the growing US budget and trade deficits was causing concern on international currency markets.

Traders feared that investors would refuse to finance such a big deficit by continuing to pump in money from abroad, and the dollar began to tumble.

December 2002: ECB cuts interest rates

The ECB had resisted cutting interest rates despite the growing evidence of a recession in the eurozone, but in December 2002 it finally acted with an 0.5% rate cut.

Normally this would have weakened the euro on international markets, but the hopes that this would boost European recovery led to the opposite effect.

The dollar's weakness was confirmed when it only briefly recovered after central banks intervened at the request of the Bank of Japan to stop the yen rising too fast.

December 2003: Euro reaches record high against dollar

One dollar bill

The euro has climbed for most of 2003, closing the year at a record high.

The weak eurozone economy has not been helped by the high euro, which makes exports more expensive.

The growing US trade deficit has weakened the US dollar, and markets have become convinced that the US will not intervene to prop up its currency.

The huge fluctuations in the dollar-euro rate over the last five years, however, have led some economists to renew their arguments for managed exchange rates.

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