European politicians and business leaders demanded action to limit the rise of the euro after the currency hit a new record high against the weakening US dollar yesterday, potentially threatening exports and manufacturing jobs across the continent. The French President, Nicolas Sarkozy, renewed his call for an urgent interest rate cut by the European Central Bank, while Airbus said it would need to find additional lay-offs to meet its restructuring goals if the euro did not fall.
At its peak yesterday, the euro hit a new record above $1.41, while the dollar languished close to a 15-year low against a basket of major currencies. This week's dramatic half-percentage point cut in US interest rates led to the sharp decline in the greenback's value, which has reached parity with the Canadian dollar for the first time in a generation and was last night at $2.02 to the British pound. The slide of the US currency has also contributed to the sharp increases in dollar-denominated commodities prices this week, including in gold and oil, and is threatening to re-ignite inflation in the US, some worried economists said yesterday. Airbus is already in the middle of a painful restructuring after losing out to Boeing in the battle for market share with a new generation of passenger jets. It has announced plans to shed 10,000 jobs across the company. But Airbus's chief operating officer Fabrice Bregier told French radio yesterday that the restructuring plan had been calculated based on a euro exchange rate of $1.35. "If the euro remains durably at $1.45, that would mean we had to find €1bn in additional savings," he said.
As well as reducing overheads at Airbus, the company would also buy more components in countries which used the dollar, M. Bregier added, potentially hitting employment at European aerospace suppliers.
M. Sarkozy's intervention was slapped down by the German Chancellor, Angela Merkel, and by Jean-Claude Trichet, the head of the European Central Bank. Both argued that the ECB's independence from politics was vital to confidence in the euro. But M. Sarkozy has repeatedly argued that a strong euro threatens to do significant damage to European exporters. He said the ECB should follow the US Fed in cutting interest rates, adding: "I don't criticise Trichet but I'm saying, 'Look at what's going on'."
The sliding value of the dollar contributed to the rise in dollar-denominated commodities, but prices have also been fuelled by hopes that the Fed's intervention on Tuesday will boost US and global economic growth, and therefore demand. Oil prices closed at record levels on four of the five days this week, and light sweet crude was just 36 cents lower at $81.42 a barrel last night.
Gold, meanwhile, yesterday reached a 27-year high, as investors sought an alternative safe haven to the US dollar. Although it eased later in the day, gold's peak was $747 per ounce, a level not seen since January 1980, when a period of high US inflation undermined confidence in the dollar and turmoil in Afghanistan and Iran prompted a flight to the perceived safety of the metal.
"There has been substantial safe-haven buying," said Suki Cooper, an analyst at Barclays Capital. "The dollar has weakened to record lows and we have revised our forecast up for oil as well. On the top of that, there is anticipation of slower US growth momentum and Fed rate easing. These factors are very supportive for gold and we see prices travelling even higher."Reuse content