Euro success worries many in economic zone

Euro’s resurgence in recent trading throws it up as a serious alternative to the dollar but has evoked concern among the euro zone's manufacturers, exporters and investors.

    Euro rise is linked to weak dollar

    With the dollar declining steadily, the euro rose above $1.1747. This was the rate at which it made its debut on 4 January 1999, when 11 countries in the European Union merged their currencies.
    The euro also hit a record high against the Japanese yen.  Currency traders said further gains were likely.
    "The trend is very, very strong -- you don't want to stand in the way of it at the moment," said Lee Ferridge, head of global currency strategy at Rabobank.
    The new heights reflected the euro's success in becoming a serious alternative to the dollar and allowed officials of the now 12-nation euro zone to laud their historic experiment.
    A European Commission spokesman repeated the bloc's position that a strong, stable euro was in the interests of the euro zone and the global economy.
    "We don't have any ceiling...It is up to the markets to define the exchange rate," a spokesman on economic affairs said. 

    Traders worried
    But the currency's strength was unwelcome among the euro zone's manufacturers, exporters and investors worried about its moribund economy.
    "If (the euro) keeps trading higher at the pace than it has been, you are going to see a lot more negative commentary coming out of the euro zone about it," said Paul Mackel, a foreign exchange strategist. 

    The euro’s resurgence comes as Germany is bordering on recession and the International Monetary Fund is warning deflation could hit the euro zone's largest economy. Official data on Friday showed annual German inflation in May at just 0.7% .
    The euro burst through its launch levels against the British pound and Japanese yen a few weeks ago, but economists attribute much of its new-found strength to the dollar. 

    The dollar down under

    The greenback has taken hits from accounting scandals among big corporations in the United States, worries about the impact of the Iraqi invasion and anxiety over US economic health.
    The euro was launched nearly four and a half years ago with much fanfare, but promptly began a slide which saw it shed around a third of its value in two years.
    After touching a low of $0.8225 in October 2000, it turned the corner after the European Central Bank and euro zone national central banks joined forces to drive it higher.
    Its real upturn came in early 2002, shortly after the introduction of euro notes and coins. Since then, it gradually recouped all its losses as a seven-year dollar bull run ended.


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