LONDON, 25 December 2004 — The euro hit a new record high yesterday against the unraveling dollar, surging to 1.3549, with some analysts seeing $1.40 as a potential trigger level for European Central Bank intervention.
The single European currency jumped to its new record at mid-morning before slipping back to 1.3529, against 1.3506 late Thursday in New York.
Against the yen the dollar was trading at 103.54, down from 103.61 on Thursday.
Trading was quiet ahead of the Christmas holiday.
“The euro-dollar rate has moved to a new life-time high as underlying lack of enthusiasm for the dollar remains firmly intact,” said Daragh Maher, currency analyst at CALYON.
After reaching record lows against the euro Thursday, the dollar plunged still further yesterday after comments by Dutch Finance Minister Gerrit Zalm that the euro continued to trade within an acceptable range against the US currency.
In an interview with the French newspaper La Croix, Zalm, whose country currently chairs the EU presidency, said: “If one remembers that the euro, when launched, was worth about $1.20, the rise of the European currency is no more than 10 percent. So the euro is moving within a range which is still acceptable.”
Such complacency contrasts sharply with the rather alarmist tone of remarks made by French Finance Minister Herve Gaymard on Thursday.
Speaking on a visit to a General Motors factory in Strasbourg, Gaymard warned of a global economic catastrophe if the United States, Europe and Asia did not work together to stem the dollar’s decline.
“If we stay in the current situation, it’s possible to imagine a catastrophic situation at world level, for the Europeans who have an overvalued currency, for the Asians who hold assets in dollars and for the Americans because long-term interest rates will rise,” the minister said.
While officials at the European Central Bank (ECB) have described recent currency market volatility as “unwelcome,” they have shown little inclination to take concrete action to stem the rise of the euro, which reduces the competitiveness of eurozone exports and — according to some political leaders — threatens regional growth.
Simon Derrick, currency analyst at Bank of New York, said there appeared to be disagreement among European Union officials as to whether — or at what level — intervention to rein in a surging euro is necessary.
“There appears to be no unanimity within the EU for pushing for intervention,” he said.
But HBOS economist Stephen Pearson said that for the market the 1.40-dollar level might be a symbolic barrier after which ECB intervention could be expected.
