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US industry output news hauls Euro back to near dollar parity

THE EURO slid back in the direction of parity with the US dollar yesterday, reacting to news of an acceleration in output by US industry and an announcement by the European Central Bank of no change in interest rates from the current 3 per cent level.

Otmar Issing, the ECB's chief economist, said it was only a matter of time before the euro reflected the underlying strength of the Euroland economy. "As a currency firmly based on price stability, it is only a question of time until also the external value of the euro reflects this internal stability," he said.

However, the euro fell to below $1.0020. The markets were swayed more by figures showing industrial output in the US rose by 4.3 per cent in the year to November, its strongest growth in a year.

The monthly rise was 0.3 per cent, more than expected, and the previous month's increase was revised up to 0.8 per cent. Production climbed most in the iron and steel, motor vehicles, computers, semiconductors and communications equipment industries.

The Federal Open Market Committee meets next Tuesday for the final time this year. Few Wall Street analysts expect a move this early, but a growing number think that interest rates could rise after the 1-2 February meeting.

Lawrence Summers, the US Treasury Secretary, said while visiting London that the US economy was continuing to expand strongly. Mr Summers indicated that he believed the expansion was still robust.

He met Gordon Brown, the Chancellor of the Exchequer, yesterday ahead of this week's meeting of the "Group of 20" (G20) developed and developing countries in Berlin.

Germany welcomed Mr Summers' proposals for reform of the IMF, as did Michel Camdessus, the Fund's retiring managing director. Mr Camdessus said that he also hoped reforms could be implemented quickly.

However, Japan expressed some reservations about the US proposals, which suggested scaling back longer-term lending by the IMF and keeping it focussed on the prevention and cure of financial crises.

The American initiative to redefine the role of the International Monetary Fund is nevertheless likely to dominate the G20 meeting.

Germany is still hoping to win backing for its deputy finance minister, Caio Koch-Weser, to succeed Mr Camdessus. But his candidacy generates little enthusiasm outside Germany.Given the current appetite for a strong, reforming leader, Mr Brown would be widely seen as an ideal successor at the IMF, but British sources are adamant that the time is not right for him to take up the position.