Dollar advance fails to rattle markets

THE currency markets have remained quiet showing virtually no reaction to weekend suggestions that the dollar has now risen far enough.

Efforts by the Group of Seven (G7) industrialised states to limit any further gains by the dollar on the international markets, failed to make any lasting impact on the US currency yesterday.

The dollar, while slipping against the major currencies in Asian trading immediately after the G7 finance ministers' meeting in Berlin on Sunday, recovered strongly in Europe to close unchanged from Friday's levels.

In Dublin, the pound continued to trade at around $1.60 in relatively thin trading. The Irish currency was also unchanged against sterling and the deutschmark, at 98p and DM 2.65 respectively.

Yesterday, Bundesbank President Mr Hans Tietmeyer said the financial markets had reacted "appropriately" to the G7's views on the dollar. "Until now we saw the markets react in an appropriate way. The message sent from Berlin seems to be understood by the markets," he said.

In their statement, the G7 nations - Britain, Canada, France, Germany, Italy, Japan and the United States - signalled their desire for stability in the foreign exchange markets by saying their currencies were no longer misaligned in any substantial way. The G10 - which actually includes 11 countries - comprises the G7 plus Belgium, the Netherlands, Sweden and Switzerland.

In general, Mr Tietmeyer gave an upbeat assessment of the global economic outlook for growth and inflation. "The economic situation worldwide is in a positive way as far as growth and inflation are concerned," he said after the meeting.

G10 central bankers also discussed the need for long term structural reform to address "relatively high" unemployment in Europe, said Mr Tietmeyer, who chairs the group.

They discussed structural reforms "because there is a clear understanding most unemployment is of a structural nature, he said, citing inflexible labour markets as one area that needed to be changed."

Mr Tietmeyer said he hoped economic growth would help solve some of the unemployment problems, but at the same time stressed that structural issues had to be addressed in a convincing way.

The G10 meeting also dealt with the impact of budget consolidation as European Union countries strive to meet the strict convergence criteria necessary to qualify for the single currency due to start in 1999.

"I think it is necessary to continue consolidation of budgets. It is important there are substantial and lasting improvements," Mr Tietmeyer said.

Only this would inspire private investors to spend money on creating new jobs, he added.

Europe's preparations for Economic and Monetary Union (EMU) were in the limelight when the bankers were briefed by Mr Alexander Lamfalussy, president of the European Monetary Institute, the forerunner to the future European central bank.

"There is a clear convergence as far as inflation and long term rates... but the problem is still in the budget field," Mr Tietmeyer said.