Welteke talks the euro down

THE EURO'S rapid climb on the foreign exchanges came to a halt yesterday after the future President of the Bundesbank tried to talk the currency down. In a U-turn that astounded analysts, Ernst Welteke said he did not want to see the euro become too strong in case it threatened the Continent's economic recovery.

Only last month Mr Welteke, who is due to succeed Hans Tietmeyer at the helm of Germany's central bank this autumn, tried to halt the decline in the euro as it appeared to be heading towards dollar parity. He suggested $1.08 was an appropriate level - a level it might have reached yesterday if he had not spoken. The currency stabilised around $1.0625, having earlier broken through $1.07.

"Mr Welteke has created confusion and raised doubts once again about the ECB's ability to manage market expectations," said Nick Stamenkovic, an analyst at the consultancy IDEA.

Most experts expect the euro to return to its upward trend, given signs that the core economies of Germany and Italy are starting to pick up. But figures tomorrow for US growth in the second quarter could jolt the markets.

Thomas Mayer, an economist at Goldman Sachs in Frankfurt, said changes in the euro had little impact on exports as most trade takes place within Euroland. "There seems little cause to worry much about exchange rate movements."

Figures released by Germany's economics ministry yesterday showed direct foreign investment in Germany doubled in 1998 to a record 35bn marks (17.9bn euros).