Euro Drops on Remarks by Continent Officials

The euro slumped Thursday after comments by the German and French finance ministers hinted that European authorities might not accept another surge in the currency’s value

The euro slid to $1.258 in New York from $1.267 on Wednesday. The decline of the last two days marked the first time the currency had dropped for two consecutive sessions since Nov. 5-6.

German Economics and Labor Minister Wolfgang Clement and French Finance Minister Francis Mer spoke less than a week after European Central Bank President Jean-Claude Trichet said “brutal swings” in exchange rates were unwelcome.

“Trichet sent the right signal,” Clement said to reporters in Berlin after a meeting with Mer. The German official said the euro’s strength should be discussed at a meeting next month of the Group of Seven finance ministers. Mer called currency volatility “dangerous.”

The euro last week reached the highest levels in its five-year history, topping $1.28 on Friday. On one hand, the euro’s ascent, and the dollar’s decline, have been a source of pride for Europe because the shifts suggest that many global investors are preferring to hold euro-denominated assets over U.S. assets.

But a strong euro also makes European exports more expensive abroad. Some analysts have argued that the euro’s dramatic rise could halt the Continent’s economic recovery.

The German government said Thursday that its economy slowly emerged from recession in the third quarter, expanding by just 0.2% after contracting by 0.2% in each of the two preceding quarters.

“They want the euro to be lower,” said Steven Englander, chief currency strategist at Barclays Capital Inc. in New York. “Europe isn’t booming.... Manufacturing is under pressure” from the strong currency.

The rising euro, and falling dollar, have been cheered by many U.S. manufacturers because the turnabout makes U.S. exports cheaper abroad.

The Bush administration and the Federal Reserve have indicated they are content to see the dollar decline. But European authorities this week have signaled that they may have a limit.

European Central Bank Council Member Christian Noyer on Wednesday said euro sales by the ECB were an option. The ECB hasn’t entered the market to influence exchange rates since 2000.

Another option: The ECB could cut interest rates to reduce the euro’s appeal. Austrian Chancellor Wolfgang Schuessel on Thursday said a rate cut would help the region’s economy weather the euro’s surge.

Whether authorities are serious about intervening is a question among currency traders.

“We don’t think they are going to cut interest rates or intervene in the foreign-exchange markets, especially without the U.S.,” said Meg Browne, currency strategist at HSBC Bank USA in New York. “But look what they’ve already got just by talking about it.”