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Alison Montgomery of IDEA in New York
"What we're seeing is a lack of concern with this euro weakness"
 real 28k

Friday, 28 January, 2000, 19:31 GMT
Euro hits new lows

Europe's single currency, the euro, has fallen to new new lifetime lows against the US dollar and sterling for the second time in two days.

The currency remained well below parity with the US dollar on Friday, falling nearly 1% to a new low of $0.9750.

This is equivalent to less than 2.00 Deutschmarks per dollar.

Dealers said the heavy losses had a knock-on effect on the euro's performance against the UK pound against which it fell 0.5% to a low of 59.95p.

Investors ignored a hint that the European Central Bank could intervene in the market, and continued to pour funds into the dollar.

The governor of Belgium's National Bank, Guy Quaden said that intervention was "not excluded", but added that it had to meet a certain number of conditions to be efficient.

Bundesbank president Ernst Welteke said the European Central Bank (ECB) would not neglect the exchange rates on the currency markets.

Waiting game

Rob Hayward, economist with BankAmerica in London, however noted that the ECB had been "pretty calm" about the euro's weakness.

"It is clear that kind of attitude doesn't work. People are just waiting to see what happens next", he said.

So far there are few signs of recovery, and the euro could establish itself at a level below dollar parity.

Falling below parity with the US dollar is a nasty psychological blow to the single currency and could undermine investors' confidence in the euro.

At the start of the year the single currency had staged a short-lived recovery, briefly reaching levels of about $1.04.

The move came after it became clear to traders that the European Central Bank had no plans to support the currency, after a meeting of central bankers last week in Tokyo.

Weak euro, good euro?

While the euro's weakness is bound to give eurozone exporters - and the region's economy - yet another boost, it will drive up the price of oil imports and could fuel inflation.

Analysts attributed the euro's poor showing on the financial markets to the strength of the US dollar and sterling which have been boosted by the prospect of looming interest rate rises in the US and the UK.

Eurozone interest rates stand at 3%, making loans cheap for consumers and businesses.

In contrast, the UK base rate stands at 5.75% and is expected to rise soon.

The US Federal Reserve is expect to announce an interest rate rise next Tuesday, up from the current level of 5.5%.

This in turn will make investments in dollars and pounds more attractive.

"The data we got in the last couple of days confirmed that UK rates will rise again and this is providing underlying support for sterling," said Geraldine Concagh, economist at AIB Group Treasury in London.

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See also:
30 Dec 99 |  Business
The euro's troubled first year
26 Jan 00 |  Business
More UK rate rises likely
27 Jan 00 |  Business
Byers lays out euro timetable

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