Bombing by NATO takes toll on the euro

The euro took another tumble yesterday, hitting new lows amid growing concerns about the state of the European economy and the continuing war in the Balkans. The euro closed at $1.0697 yesterday from $1.0722, bringing the pound to 84p against sterling.

Bank of Ireland Group Treasury economist Mr Jim Power suggests the euro will remain under pressure over the next couple of weeks and could move as low as $1.07.

And despite the best efforts of European Central Bank president Mr Wim Duisenberg, European interest rates may be forced lower later this year, according to Mr Power. "The economic data coming out of Europe over the next three to six months will determine the level of European interest rates and the ECB may be forced to cut rates once again."

The prospect of a protracted war in the Balkans means dealers are bracing themselves for further losses next week. So far, the euro has shed as much as 3 per cent from a high of $1.0960 just before NATO started bombing Yugoslavia. A drawn-out conflict in Yugoslavia, with ground troops deployed and even Russia involved, would hit budgets in the euro zone, adding to the plethora of negative factors that have weighed on the euro since its introduction in January.