The surging euro continued on its upward path on Tuesday as European policymakers played down the impact of the recent rise in the single currency.
French politicians had clearly laid out their position regarding the euro’s recent strength on Monday, with Thierry Breton, France’s finance minister, and Christine Lagarde, trade minister, voicing concerns over its effect on eurozone growth.
However, analysts said that it was noticeable that the pair had not yet been joined by other eurozone finance ministers.
Indeed, yesterday, Karl-Heinz Grasser, Austria’s finance minister, said the euro’s recent strength was “nothing special at all”, adding that it reflected the strength of the eurozone economy.
Chris Turner, head of currency research at ING Capital Markets, said that Gernamy’s finance ministry seemed to be welcoming the euro’s strength as a sign of a strong economy.
“Remember that while a strong euro may make life a little more difficult for exporters, it also delivers benefits – particularly in reducing corporate borrowing costs by reducing the premium foreigners require for holding foreign currency debt,” he said.
Mr Turner said that rather than reacting to comments from the French finance ministry, the foreign exchange markets would be better advised to listen to Jean-Claude Trichet, president of the European Central Bank, who is technically in charge of eurozone FX communication, and the chairman of the Eurogroup – currently Jean-Claude Juncker, Luxembourg’s prime minister – who represents the views of the eurozone’s finance ministers.
“Neither Mr Trichet nor Mr Juncker have yet to express concern over either the level of euro/dollar or the pace of its advance,” said Mr Turner.
The euro was further supported by data showing that eurozone money supply grew at an annual rate of 8.5 per cent in October, well above the ECB’s 4.5 per cent reference rate.
Stuart Bennett, economist at Calyon, said the eurozone remained drenched in liquidity, in spite of five interest rate rises since December 2005.
“Liquidity continues to pose an upside inflation risk, supporting the view that the ECB will hike rates in December and further in 2007,” said Mr Bennett.
Against the yen, which was already under pressure following weaker-than-expected Japanese retail sales figures, the euro rose to a fresh record high of Y153.06. It eased back to Y152.80 by mid-afternoon in New York, still up 0.2 per cent on the session.
Meanwhile, the euro notched up a fresh 20-month high of $1.3181 against the dollar after an unexpectedly sharp decline in US durable goods orders in October.
However, the dollar later pared its losses to stand down 0.2 per cent at $1.3150 against the single currency as US existing home sales rose in October, beating market forecasts.
The dollar gained 0.1 per cent to Y116.20 against the yen.
Elsewhere, sterling climbed to a two-year high against the dollar and rose against the euro as a flurry of positive news combined to boost the pound.
Gordon Brown, the British chancellor finance minister, said that UK growth would exceed the government’s forecast this year, while figures from the Land Registry showed that UK house prices had grown at their fastest annual pace in 17 months in October.
Traders said the pound had also been supported by news that Iberdrola, the Spanish utility, had agreed a takeover of the UK’s Scottish Power, a deal which would be partly funded by £6bn in cash.
The pound rose 0.5 per cent to $1.9480 against the dollar and 0.4 per cent to £0.6752 against the euro.
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