Euro Gains Support, Rising Against Dollar
Better take that European vacation--or buy that French wine--soon.
The euro continued to surge against the dollar Friday, reaching 93.2 U.S. cents in New York, up from 91 cents Thursday and the highest since April 24.
The beleaguered currency hit a record low in early May, when it took just 89 cents to buy one euro--down from $1.17 at the start of 1999.
A chorus of supportive comments from European officials kicked off Friday’s climb. From a technical standpoint, the euro shattered key levels on charts as it crossed 92 cents, realigning its technical stars in a more constructive constellation and convincing many analysts that the recent lows marked the currency’s bottom.
“Even the euro skeptics have been impressed,” said Lisa Finstrom, senior currency analyst at Salomon Smith Barney.
The euro’s broad-based charge brought it to four-month peaks against the British pound and a one-month high against the Swiss franc. It scaled nearly 2% higher against the yen.
Analysts said worries over Wall Street volatility, uncertainty over the path of U.S. interest rates, thin market conditions ahead of a long holiday weekend and a more coherent tone of concern from official Europe had helped the euro rise.
“This has been a pretty good environment for the euro. One should not discount the move up that we’ve seen,” said Jim McCormick, currency strategist at J.P. Morgan.
He said the euro had impressed some players enough to open modest bets that it had more room to rise in the short run.
“That’s the first time we’ve seen that in a while, but it’s also quite risky,” McCormick said.
“There are very real reasons why the euro is higher, but we should be cautious about thinking this is the bottom. It’s the fundamental picture we need to keep an eye on. At the moment I don’t think we’ve seen a really big change,” McCormick said.
Though concerns about U.S. asset markets are a weight on the dollar, U.S. economic growth still outpaces Europe and the U.S. remains a magnet for foreign investment.
The euro began rising overnight after Bundesbank President Ernst Welteke raised the specter of central bank intervention to lift the euro, saying its weakness “bothers us each day.” European Central Bank Chief Economist Otmar Issing stepped into the fray after U.S. trade got underway, calling the currency’s weakness a “black spot” on the ECB’s record.
There was clearly an “orchestration of support” underway to verbally boost the euro, Finstrom said, saying she would not rule out central bank intervention to boost the euro in the near term.
For weeks market players have been on edge in anticipation the ECB could swoop into the market and buy euros, possibly with help from its global partners. A Bundesbank report this week that the currencies were misaligned heightened that fear.
If the euro continues to rebound it will be bad news, relatively speaking, for U.S. tourists who hoped to get Europe dirt-cheap this summer. But a stronger euro could help U.S. investors who own European stocks, by automatically boosting their value in dollars--unless the stocks’ prices slide.
