Fresh high in euro's sights

Frankfurt - The euro remained above 1.37 dollars Wednesday with analysts expecting the common European currency to press on to breach the key 1.40-dollar mark in the coming weeks as concerns set in about the outlook for the United States economy.

This follows the euro hitting an all-time high of 1.3784 dollars Tuesday with markets speculating about the prospects of the European Central Bank (ECB) continuing its rate-setting cycle on the back of a solid performance by the 13-member eurozone economy and renewed inflation fears.

At the same time, however, analysts are more uncertain about the outlook for US interest rates with some dealers even talking about the US monetary authorities cutting borrowing costs following worries about the impact on the nation's growth of the shakeout in the housing market.

The common currency's previous record of 1.3682 dollars was set in April. Since then, economic data has continued to point to the eurozone remaining on a growth track and shaking off slowing US economic growth.

The rate-setting US Federal Reserve Board left its monetary policy unchanged last month with a benchmark interest rate of 5.25 per cent.

Meanwhile, the ECB appeared to prepare the ground at its meeting last week to deliver another rate hike in September, which would lift its benchmark refinancing rate to 4.25 per cent.

This would be the ECB's ninth rate hike since the bank launched its current cycle of tighter monetary policy in December 2005.

In a report released Wednesday, the investment house HSBC Trinkaus & Burkhardt saying that the euro's climb had now cleared the way for the common currency to shoot past the 1.40 level with the next resistance marker coming at 1.4160 dollars.

By late morning trading in Europe, the euro had edged down 0.2 per cent to 1.3719 dollars.

However, the euro's climb has set alarm bells ringing about the eurozone's key export machine with European shares chalking up further falls Wednesday.

After closing down 1.22 per cent Tuesday, the pan-European EuroStoxx 50 dropped a further 0.7 per cent by mid-morning trading Wednesday.

The Frankfurt stock exchange leading DAX index had lost more than one per cent in trading Wednesday. Germany is the world's leading export nation.

After making its debut on world forex markets at 1.18 dollars in January 1999, the euro dropped about 25 per cent over the following 18 months or more, as concerns set in about the currency bloc's economic outlook and as Europe's political leaders battled to reach consensus on reform.

The common currency hit a record low of 82.52 US cents in October 2000. Euro notes and coins were introduced in January 2002.

dpa

Does anyone here invest in the Euro?