Euro Rises as Market Cheers Official’s Departure

The surprise resignation Thursday of German Finance Minister Oskar Lafontaine was greeted with relief among Western political leaders and with enthusiasm by traders of the beleaguered European currency, the euro.

Indeed, judging by the currency market’s reaction, the euro’s 10-week slump against the dollar may be over. The departure of Lafontaine, a vocal critic of the European Central Bank’s refusal to cut interest rates since it took control of monetary policy for the euro, is the first good news for the euro since its 7.3% slide began in January.

Investors and traders regarded the German politician’s frequent calls for lower rates as undermining the ECB’s independence and his support for increased government spending a threat to the euro’s credibility.

“Now that he’s off the scene, the road is clear for the ECB to reestablish credibility,” said Stewart Newnham, a currency strategist at Commerzbank. “The euro’s risk premium has disappeared.”

The euro surged as much as 2.4% to $1.1057 in London on Thursday after the announcement, from as low as $1.0798 in earlier trading. In late New York trading, the euro was quoted at $1.1023, up from $1.0940, as traders sold off their dollars and yen and bought euros, Swiss francs and British pounds.

Clinton administration officials who insisted on anonymity joined market analysts in cheering the move, predicting it will help the Group of 7 leading economies overcome a rift over how to reform financial markets and, ironically, that it may even make it easier for the ECB to cut interest rates. That’s because the body may now feel a greater sense of independence, some observers said.

* MINISTER QUITS: German finance minister resigns after clashing with the new chancellor. A6