Euro narrowly escapes parity with dollar as it tumbles to new low

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The Independent Online

The Euro fell to a new low against the US dollar yesterday - coming within a whisker of the humiliation of one-to-one parity - and also languished near its all-time low against the yen.

The Euro fell to a new low against the US dollar yesterday - coming within a whisker of the humiliation of one-to-one parity - and also languished near its all-time low against the yen.

The dollar also fell against the strengthening yen despite intervention by the Bank of Japan to buy up the American currency during Asian trading hours.

Traders in the financial markets have three different parities within their sights - one euro to the dollar, one hundred yen to the dollar, and one hundred yen to the euro. "People just want to see these numbers on their screens, if only for a second," said one.

Wim Duisenberg, President of the European Central Bank, said the European single currency would eventually strengthen in line with the economic recovery in the EU-11 countries. But he admitted that the current weakness might be damaging. "I am concerned that all the talk and hype about the external exchange rate may to some extent undermine the confidence that people have in their currency," he told the European Parliament.

Analysts agreed that the recent moves in the foreign exchange markets have little to do with economic fundamentals, but rather reflect portfolio switches by investors ahead of the end of the year, while the strength of the yen is the result of institutions increasing their investments in Japanese assets.

"The euro-sceptic press is focusing on the fall in the euro and making out that it is a result of structural weakness, but this is just not correct," said Nick Parsons, currency strategist at Commerzbank.

In addition, huge flows of funds linked to the wave of takeovers have tended to favour currencies outside the euro zone. Economists at Goldman Sachs estimated that the combined outflow from the euro to sterling from the Deutsche Telekom takeover of One2One and the Mannesmann acquisition of Orange would amount to more than two-thirds of the Euro-11 current account surplus for the full year.

The euro yesterday fell as low as $1.004, a full cent lower than late on Friday and a new low point. It also hovered close to its all-time low of 102.40 yen. The dollar fell to 101.64 yen, a four-year low against the Japanese currency, at the same time as gaining against the euro.

Traders reported that liquidity in the currency markets has already started to dry up ahead of the end of the year, as usually happens, but it had occurred earlier than normal this year in case any problems emerge as a result of the year 2000 computer bug.

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