Europe sure of growth as dollar weakens
Europe sure of growth as dollar weakens
By Neil Dennis in London and Krishna Guha in Washington
Copyright The Financial Times Limited 2007
Published: April 18 2007 21:48 | Last updated: April 19 2007 13:01
European policymakers remained confident about the prospects for growth on Wednesday, while US officials were quiet as sterling hit a 26-year high and the euro neared a record peak against the US currency.
Sterling, which went above $2 for the first time in 15 years on Tuesday, rose as high as $2.0133 before falling back to $2.0045.
The euro climbed to $1.3616, only half a cent shy of its $1.367 record in December 2004, before weakening in later trading.
Hank Paulson, the US Treasury secretary, has not made any new remarks about the currency and other US officials have remained quiet about the latest dollar weakness. The US formally has a “strong dollar” policy but Mr Paulson, like his predecessors, emphasises that its external value is market-determined.
US officials recognise that a weaker dollar should boost exports and, in the long run, help reduce the US trade deficit, though it may also add to inflationary pressures in the US.
In spite of the euro’s strength, European policymakers were confident about the prospects for eurozone growth.
ECB governing council member Axel Weber said the German economy was strong and annual growth should exceed 2 per cent. His council colleague Yves Mersch added that the risk of slowing domestic demand in Europe had eased. ”There’s still strong demand from good export performance which is heading higher,” he said.
The euro is being bolstered by the belief that eurozone interest rates have further to rise, while US rates are unlikely to rise further and may start falling later in the year. Strong eurozone economic data and an hawkish ECB have suggested eurozone rates – which were held at 3.75 per cent this month – will be raised by 25 basis points to 4 per cent in June.
Hans Redeker, global head of strategy at BNP Paribas, contrasted the dollar’s latest moves to those of December 2004 when the euro quickly retreated after hitting a record high.
He said: ”This dollar weakness is going to last for some time as euro strength is based on strong growth and interest rates, not wild speculative moves.”
Mr Redeker added that investors seemed to be taking the view that the euro’s strength was being absorbed by the eurozone economy, while the US slowdown was a self-contained event that would have little spill-over.
Sterling’s climb to its highest level against the dollar since June 1981 was boosted by heightened expectations of an interest rate increase next month, after minutes from this month’s Bank of England meeting showed two MPC members had voted for a 25 bp rise.
By Neil Dennis in London and Krishna Guha in Washington
Copyright The Financial Times Limited 2007
Published: April 18 2007 21:48 | Last updated: April 19 2007 13:01
European policymakers remained confident about the prospects for growth on Wednesday, while US officials were quiet as sterling hit a 26-year high and the euro neared a record peak against the US currency.
Sterling, which went above $2 for the first time in 15 years on Tuesday, rose as high as $2.0133 before falling back to $2.0045.
The euro climbed to $1.3616, only half a cent shy of its $1.367 record in December 2004, before weakening in later trading.
Hank Paulson, the US Treasury secretary, has not made any new remarks about the currency and other US officials have remained quiet about the latest dollar weakness. The US formally has a “strong dollar” policy but Mr Paulson, like his predecessors, emphasises that its external value is market-determined.
US officials recognise that a weaker dollar should boost exports and, in the long run, help reduce the US trade deficit, though it may also add to inflationary pressures in the US.
In spite of the euro’s strength, European policymakers were confident about the prospects for eurozone growth.
ECB governing council member Axel Weber said the German economy was strong and annual growth should exceed 2 per cent. His council colleague Yves Mersch added that the risk of slowing domestic demand in Europe had eased. ”There’s still strong demand from good export performance which is heading higher,” he said.
The euro is being bolstered by the belief that eurozone interest rates have further to rise, while US rates are unlikely to rise further and may start falling later in the year. Strong eurozone economic data and an hawkish ECB have suggested eurozone rates – which were held at 3.75 per cent this month – will be raised by 25 basis points to 4 per cent in June.
Hans Redeker, global head of strategy at BNP Paribas, contrasted the dollar’s latest moves to those of December 2004 when the euro quickly retreated after hitting a record high.
He said: ”This dollar weakness is going to last for some time as euro strength is based on strong growth and interest rates, not wild speculative moves.”
Mr Redeker added that investors seemed to be taking the view that the euro’s strength was being absorbed by the eurozone economy, while the US slowdown was a self-contained event that would have little spill-over.
Sterling’s climb to its highest level against the dollar since June 1981 was boosted by heightened expectations of an interest rate increase next month, after minutes from this month’s Bank of England meeting showed two MPC members had voted for a 25 bp rise.
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