Euro Hits 2-Year High Against Dollar

Associated Press ^ | 20 June 2002 | DAVID McHUGH

[Asmodeus]

FRANKFURT, Germany (AP) - The euro rose to its highest level against the dollar in more than two years Thursday, climbing above 96 U.S. cents as traders dumped the greenback over fears about the growing U.S. trade deficit and wobbly stock market.

The currency reached 96.45 cents in afternoon European trading, its highest since March 2000, when it traded at 96.53 cents.

New figures that showed the U.S. trade deficit at a record dlrs 35.9 billion in April helped push the euro up from levels just below 95.60 cents early in the day.

"That was the spike that took it over 96," said Nigel Anderson, a currency strategist at RBS Financial Markets in London.

The rally was motivated more by doubts about the dollar than conviction about the strength of the euro and the economies of the 12 countries that use it, he said.

Anderson said the current euro rally looked more solid than earlier ones, in which the currency moved toward parity — one euro to the dollar — only to fizzle out.

"The longer it continues, the more comfortable people are moving their assets into euros and that reinforces the upward trend," he said.

Trade deficits mean more dollars must be sold to get the foreign currency to pay for imports, driving down the dollar's exchange rate. Until recently, that was offset by foreigners needing dollars to invest in U.S. financial markets — support that has waned as stocks have fallen.

A stronger euro makes European vacations more expensive for Americans, but makes it easier for U.S. exporters to compete in Europe. The euro's rise has also lessened inflationary pressures in Europe, giving the European Central Bank more time to wait before raising interest rates.

The euro hit its all-time high of $1.18 shortly after its introduction in January 1999. Notes and coins were introduced in 12 European Union ( news - web sites) countries on Jan. 1.

[walden]

Thanks, you have added to my understanding of this stuff. I'm an accountant, not an economist, so the advent of the euro (except for my sentimental respect for the British pound, and before the euro, the German DM) had always seemed to me to be a good idea-- at least until I finished Margaret Thatcher's new book "Statecraft". Highly recommended! I don't pretend to really understand this stuff, but she makes a lot of sense.

[Salman]

The HQ of the EU is in Brussels (capital of Belgium). That does not mean that the EU is controlled by Belgians. The EU is controlled by

"'Tis a fine old conflict let each stand in its place
The international bureaucrat will be the Human Race."

[Salman]

I think that the "euro" european central banking is being done from Frankfurt am Main.

You are right. The Bank of Frankfurt is to the Euro what the Federal Reserve Bank (a private bank BTW) is to the US dollar.

[Salman]

This graph also would be more honest and less dramatic if properly zero based.

[the]

I agree on the drama, but using a computer screen of limited resolution, I think that a non-zero Y-axis graph provides a lot more detail, and can be more informative.