London: Propped-up euro back on the slide again

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Propped-up euro back on the slide again

By David Litterick

THE troubled euro resumed its slide against the dollar yesterday, losing almost a cent, despite Friday's massive intervention by central banks of the G7 industrialised nations.

The currency closed at 87.33 cents, down from the 88.15 cents close it reached on Friday after billions of dollars were spent on currency markets trying to prop it up. Against the pound it closed down at 60.14p.

Although there was no further intervention by the G7 yesterday, the organisation has said it will monitor the situation. Many analysts and traders feel a further assault on the foreign exchanges will be necessary, with some speculating that it could come on Friday if the Danish referendum results in a vote against joining the euro on Thursday.

Meanwhile, at a speech to students and academics at the University of Wales, monetary policy committee member DeAnne Julius explained why the MPC had not put up interest rates despite forecasts that inflation would breach the government's 2.5pc target.

She said: "Even if we thought a rise might be necessary, the forecast does not imply it should happen immediately. Second, although there is consensus that sterling is overvalued against the euro, it is not possible to predict when or how quickly this might unwind. Our forecasts aren't perfect."

She added that the oil price was also unpredictable. Yesterday Brent oil for November delivery was trading at $30.70 in late London dealing. Initially it dropped below $30 as Bill Clinton announced that oil would be released from US strategic reserves to prevent winter price rises.

Many economists pointed to trade data released by National Statistics indicating that interest rates will have to rise further. The figures showed a worsening trade deficit to a record #3 billion in July because of a seemingly erratic fall in exports outside the EU, while the deficit on trade within the EU narrowed.

However, there was no strong evidence of the anticipated slowdown in domestic demand growth which the Bank of England hopes will ease inflationary pressure.

http://www.telegraph.co.uk/et?ac=000122257519214&rtmo=3mAK3AxM&atmo=rrrrrrbq&pg=/et/00/9/26/cneur26.html

-- Carl Jenkins (Somewherepress@aol.com), September 26, 2000

Answers

With no actual currency to back the euro, plus the Europeans tendency to continually raise interest rates, no matter the damage to their economies, it's hard to see how the euro can do anything but resume its fall.

-- JackW (jpayne@webtv.net), September 26, 2000.

Moderation questions? read the FAQ