Relentless rise of euro could jeopardise jobs

MANY EUROPEAN businesses, unions and some politicians grew increasingly worried yesterday that a relentless rise in the value of the euro would further erode company profit margins, jeopardising jobs and investments.

The euro hit a record above 1.60 to the US dollar on Tuesday as comments from European Central Bank officials triggered market bets that the ECB's next interest rate move would be a rise to tame record high inflation rather than a cut to spur growth.

Luxembourg prime minister and chairman of euro zone finance ministers Jean-Claude Juncker reminded markets that the Group of Seven - the US, Japan, Germany, Britain, France, Italy and Canada - had warned against such excessive moves. "It was not the intention of the G7 to lead to the results we are noting today," Mr Juncker said. "We are observing excessive volatility at the moment."

Following Mr Juncker's comments, the euro eased 0.6 per cent to $1.5894 in early afternoon US trading from $1.5991. On Tuesday it had climbed to $1.6019, the highest level since the currency's 1999 debut.

Despite the easing, the single currency was still 9.2 per cent up against the dollar since the start of the year, and almost 21 per cent higher than at the start of 2007.

Figures yesterday indicated that euro zone service sector growth rebounded marginally in April, although price pressures surged and manufacturing activity fell to a near three-year low, a major survey showed.

But in signs that the global slowdown and strength of the euro are beginning to hurt the euro zone economy, the manufacturing survey showed both new orders and new export orders shrinking for the first time since May 2005.

The RBC/NTC Eurozone Purchasing Managers Index for the region's services companies, ranging from banks and airlines to cafés, rose to 51.8 in April, up from 51.6 in March.

Separate figures showed that French and Italian households are scaling back spending on clothes, electrical goods and other items as surging energy and food prices mean essential daily items are eating up more of their income.

In France, household spending on manufactured goods suffered its biggest drop in a year and a half in March to the surprise and disappointment of economists yesterday.

Retail sales in Italy, the euro zone's third biggest economy after Germany and France, rose in February in value terms, but were close to flat or worse after stripping out the flattering effect of rising prices.