Worries mounting over long-term prospects of euro

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Worries mounting over long-term prospects of euro

By KARINE G. BARZEGAR, Associated Press

NEW YORK (9/15/2000, 7:16 p.m. CDT) - The euro hit a new historic low against the dollar Friday amid growing worries that the European Central Bank purchase of euros will be unable to help the currency recover from its recent free fall.

The euro was trading already near its record lows, within the 85.60 cents range, but dipped even lower after Federal Reserve Bank of Richmond President Alfred Broaddus said the recent drop in the euro could raise the question of its viability in the long term.

Broaddus' comments, combined with good inflation news out of the United States and currency traders' negative sentiment towards the ECB policy, pulled the euro down to a new all-time low against the dollar.

About 3:30 p.m. EDT, the euro was trading at 85.63 cents. In later trading, the ailing European currency fell as low as 85.24 cents, its lowest level since being introduced at $1.16 in January 1999.

"The euro is continuing to struggle and the thin market conditions - late Friday trading - exaggerated its fall," said Andrew Delano, foreign exchange analyst at IdeaGlobal.

Although Broaddus added his feeling was the euro would survive in the long run, currency traders sold heavily their euros, partly as the fear of a European intervention began to fade.

The ECB announced Thursday it would sell dollar- and yen-denominated interest gained on holdings of foreign currencies and convert it to euros, a total of roughly 2.5 billion euros ($2.15 billion).

As a result the euro rallied against the dollar in early trading Thursday, but slowly drifted back to lower levels after the ECB denied the sale was a foreign exchange market intervention meant to prop up the euro.

"The ECB's move has really proven to be ineffective," Delano said. "They are selling accumulated interest in exchange for euros, which is a signal of soft intervention, but it has been taken with a certain amount of skepticism in the (currency) market."

Currency traders said they expected the euro to plunge further against the dollar, trading within the 84.50 cents range, as the dollar remained a safe haven for investors in coming months.

In other trading, the dollar also was quoted at 107.35 Japanese yen, up from 107.65 yen in quiet trading, as Japanese financial markets were closed for a national holiday.

The dollar also was quoted at 1.7831 Swiss francs, up from 1.7727, and 1.4834 Canadian dollars, down from 1.4879. The British pound fell to $1.4000 from $1.4069.

Currencies of the 11 countries participating in the euro are no longer traded separately and are tied to the euro by a fixed rate. Based on Friday's euro rate, the dollar was worth 2.2839 German marks, up from 2.2637; 7.6599 French francs, up from 7.5921; and 2,261.07 Italian lire, up from 2,250.95.


-- Martin Thompson (mthom1927@aol.com), September 16, 2000


When you realize that the euro has sunk nearly 30% against the dollar since its inception, it's time to run for the tall grass.

-- RogerT (rogerT@c-zone.net), September 16, 2000.

The heavy European Central Bank intervention--buying up Euros to prevent further decline--is the kiss of death.

-- JackW (jpayne@webtv.net), September 16, 2000.

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