Investors cashed in their profits on the euro in the past week, further eroding earlier heady expectations of a quick rally to match the dollar one-for-one. The single European currency dropped to $0.9266 in closing trade here Friday, February 9, from $0.9553 a week earlier.
After gaining ground against the dollar on fears of a hard landing for the US economy, the euro was forced into a retreat when a strong rise in German jobless figures Tuesday raised concerns about the euro zone.
A healthy rise in US productivity, which was up 2.4 percent in the last three months of 2000, soothed some of the concerns about the world's biggest economy and further undercut support for the euro.
On Thursday the European currency dropped below the psychological support level of $0.92. Traders suddenly lost faith in earlier forecasts that the euro could rise to parity with the dollar in the short term. "The market was a bit too optimistic at the start of the year in counting on a return to parity with the dollar within weeks," said Canadian Imperial Bank of Canada economist Audrey Childe-Freeman.
The euro had thus lost three cents in three days, said a report by economists at BNP-Paribas, blaming profit-taking by investors who had been disappointed by the euro's performance. "The problems remain unchanged over the short term; so long as the markets believe in the scenario of a quick recovery for the United States, the dollar will get stronger, it said.
The rapid and aggressive action by the US Federal Reserve, which cut interest rates by one percentage point in January, and the prospect of further easing ahead, strengthened belief in that scenario. Traders were set to focus on Federal Reserve chairman Alan Greenspan's testimony to Congress on Tuesday. But unless the US stock markets drop sharply, few analysts expect the European currency to recover soon.
"There is the growing perception that Greenspan has regained control of the American economy," said Standard Chartered economist Claudio Piron. "We are back to the old psychological thinking of last year; the American economy is more dynamic than the European."
The outlook for the euro on the markets is now uncertain and it is threatened with further falls after dropping below $0.92 dollars in late Thursday trade. "The market is now looking to whether the euro can protect the $0.91 level, with a breach of this level seen opening up a path towards the $0.90 level," said Kokusai Securities foreign exchange manager Minoru Shioiri.—(AFP)
© Agence France Presse 2000
© 2001 Mena Report (www.menareport.com)
