- LONDON, England (CNN) --
As the euro heads towards parity with the U.S. dollar, one currency watcher
expects the euro to hit $1.05 by the end of the year.
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- "Its only a matter of time before parity but it
won't stop there. It may be at 1.05 (U.S. cents) by the end of the year
and then 1.10 a year from now," Steve Barrow, currency economist at
the Bear Stearns, told CNN.
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- The euro hovered around 99.75 cents in midday London
trading on Friday, close to a fresh 28-month high of 99.90 cents hit earlier
in the day. The dollar has fallen 10 percent against the euro and yen this
quarter.
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- The 12-nation eurozone's common currency, which was launched
on January 1, 1999 and began trading at 1.17 cents, has been undermined
by a lack of confidence in the European Central Bank and prospects for
growth. (Full story). It was last at parity in February 2000.
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- Global investors, which had ploughed $116 billion into
U.S. stocks last year, are now withdrawing money rapidly -- unconvinced
by the strength of the U.S. economic recovery.
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- And WorldCom's admission it inflated earnings has cast
more doubts about corporate governance standards in the United States following
the collapse of Enron and a series of telecom bankruptcies.
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- "The dollar will grind lower in coming months,"
Barrow said. Investors are now shifting money back to Europe "in the
month of April, 11 billion euros were put into (European) stocks and bonds
and data in subsequent months will show more is coming."
-
- Billionaire financier George Soros told the Wall Street
Journal that the dollar could shed a third of its value in the coming months.
Soros, who famously bet against the pound when it crashed out of Europe's
exchange rate mechanism in 1992, said the dollar's fall had some negative
implications for the world economy and endangered U.S. consumer confidence.
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- A basket of currencies -- including the Swiss franc,
sterling and yen -- have weakened over recent months for different reasons.
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- Japanese authorities have sold the yen on five days since
late May, amid concerns that a strengthening currency could harm the country's
tentative recovery. Meantime, the British pound has come under pressure
amid speculation that Prime Minister Tony Blair may call a referendum to
join the single currency next year.
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- The pound was anchored around two-year highs against
the dollar. It rose to a fresh two- year high of $1.5380, before slipping
back to $1.530 in midday London trading on Friday.
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- However, the pound has lost ground to the popularity
of the euro, falling to 64.80 pence but close to the week's low of 65.27
pence. That is its lowest level versus the euro since October 1999, below
the old rate of three German marks to the pound.
-
- "Sterling possibly will not sustain gains beyond
the mid $1.50 points but will lose out against the euro," said Brown.
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- But Sharda Dean, euroland economist at Merrill Lynch,
told CNN that they believe the euro would fall back after hitting parity.
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- "We reckon by the end of the year we'll be back
to the 97 level," said Dean. "Because we still believe growth
in the U.S. should outpace the eurozone, which has long-term structural
problems."
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- Barrow also argues that growth is still sluggish in the
eurozone and there are inherent political problems with governments struggling
to meet conditions for euro entry
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- The current rise of the euro is more to do with sentiment
towards the equity market and there is a lack of belief in a recovery.
The markets are waiting to see if there is a profit-led recovery or a more
sluggish recovery, said Dean.
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- European politicians would like the euro challenge the
dollar as a currency held by central banks around the globe, and that would
go some way to shore up the credibility of the euro at home.
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- http://europe.cnn.com/2002/BUSINESS/06/28/euro.dollar/index.html
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