Euro hit by poor economic figures

The euro has suffered again on the markets, falling below $1.02 after weaker-than-expected confidence figures from the EU and a rise in jobless data in Germany dealt a blow to analysts' expectations of a recovery in the euro zone economy in the second half of 1999.

"What is clear is that the growth differential between the United States and the euro zone is remaining and that is not too good for the euro," according to Mr Peter Praet of Fortis Bank in Brussels. The divergence in the two economies was the main reason for the weakness of the euro, which hit a record low of $1.0184 early in the day before clawing back above $1.02 in late trading.

It took little comfort from European Central Bank vice-president, Mr Christian Noyer, saying he was confident the unit would be a strong currency in international markets.

"I think the (euro) bears are closing in very fast now on a test of parity," (with the US dollar) said Mr David Brown, chief economist at Bear Stearns in London.

Mr Brown said the market had been over-reacting to a newspaper report that the French planning commission had suggested the euro zones's stability pact should be loosened. French Finance Minister, Mr Dominique StraussKahn, strongly denied the report.

The same speculation hit European debt markets, driving down government bond prices and forcing up yields. Germany's benchmark September 10-year bund future contract hit a contract low of 108.65, while the yield on the underlying cash bund moved well above 4.7 per cent to its highest levels in 12 months. German unemployment rose slightly in June as the economic slowdown in the fourth quarter of 1998 and early 1999 doused hopes of a turnaround in the jobs market.

Unemployment, traditionally a lagging indicator, grew by a seasonally-adjusted 15,000 from May to 4.123 million, federal labour office data showed on yesterday.

The increase compares with the 10,000 rise analysts had forecast.

The unemployment rate, based on unadjusted data, fell to 10.1 per cent from 10.2 per cent in May. Independent economists say economic growth should improve in the second half of the year, as there are early signs that the economy is turning around.

But labour office president, Mr Bernhard Jagoda, said yesterday there was still no sign of the economic upturn having an impact on the jobs market.