Euro fight turns into pitch battle

There's no doubt that the ECB's 50 basis point hike in euro-zone interest rates surprised the market. As I've said before, many surprises aren't really surprises at all because they've already been talked about even in passing and have been chalked up as a possibility in at least some people's minds, but no one was really talking about anything more than a 25 basis point rise last week.

The consensus seemed to be a quarter point hike plus a move to a variable rate refinancing tender which would, in itself, signal an increased tightening stance by the ECB. Now the researchers are scratching their heads and wondering exactly what was in Wim Duisenberg's mind when the ECB made its move.

I thought it was a clumsy way to signal support for the euro. The currency had already been making up some ground against a weakening dollar and sterling and I felt that perhaps Duisenberg and the lads thought they'd give it a helping hand.

Perhaps they believed that, while they could do nothing to support it on the way down, they might be able to increase confidence in it on the way up. That seems somewhat muddled thinking to me, but then the ECB hasn't exactly won any gold medals for clarity of view since January so why change now?

But being unpredictable doesn't really help markets and doesn't make participants terribly confident about the ECB's overall strategy. So, while the initial reaction to the move was to push the euro higher, the currency slid back in later trading.

GDP in Europe was up 0.7 per cent in the first quarter of this year compared to 0.8 per cent for the last quarter of 1999 although, to give some sympathy to the ECB's view that economies need to be dampened down, growth in the area as a whole should be above 3 per cent for the year.

Most of the business confidence indices have been strong and both Germany and France are doing well. France has been particularly strong of late. That being the case, there is a likelihood that the ECB will tighten still further later in the year, though whether it terrorises the markets by another sharp hike is open to question.

Things are somewhat easier to follow in the US where, although there is a lot of debate over the possibility of another raise by the Fed, people do think that we're close to the top of the cycle.

Nevertheless, Fed governors Robert Parry and Edward Gramlich continue to imply the possibility of at least one more tightening move in June, suggesting that they still need more evidence to be assured of a slowdown in US economic growth. Confidence in the Fed remains high and, as much as the worry is that Europe will end up shrieking to a sudden halt in growth, the Fed looks as though it will manage to featherbed the US economy in to what is euphemistically called a soft landing.

I'm hoping that the bird which is currently hopping around the garden had a soft landing too! The last two days have seen me watch in terror (because I have a cat!) and in fascination as the baby blackbird which fell out of its nest struggles to learn to fly. It can hop and it's gone over every blade of grass which is no mean feat - and it can flap its wings to increasingly good effect but it just hasn't managed to get airborne yet and I'm sitting here urging it to find the necessary lift to get into the sky. It's making progress but whether that progress will be enough to enable it to dodge the cat is debatable.

Fortunately, the cat is extremely lazy and unless the bird flaps its wings under his nose it should be all right. Although usually trying to get the feline out of the armchair and into the garden, my energies are now in the opposite direction. Naturally, this is the one time the cat wants to be out and about.

Meanwhile the chick's parents are flying around trying both to protect it and encourage it in its efforts while hoping that it'll get its act together soon. I appreciate that news of baby birds flying is not entirely relevant to the euro and European economies but, right now, its battle for survival seems far more pressing than euro-zone growth.

I suppose if I were still plying my trade in the IFSC I would be equally concerned about that other great battle currently under way, Euro 2000.

Apparently, in a recent survey, the Belgians who are the co-hosts actually thought that it was another euro coin. Doesn't sound promising for them, even if they did win their opening game.

It's sad to think that my mindset was enough to think of the England-Portugal game as a sterling-euro type of battle. And tomorrow night against Germany it's a whole mish-mash of new and old, progress, patriotism and just about everything else.

The Germans have a team in which one of the key players is nearly as old as I am. But they're full members of the euro zone and still backing the euro even though it's a rocky road. The English have 20-year-old Michael Owen, who gets paid in bucketfuls of sterling and who's probably quite happy to keep it that way. If England win, expect sterling to strengthen again. If they lose well, they're used to that, I suppose.

Not being in an office means that I didn't draw a team and, of course, everyone has to have a team. It's very girly to support the Dutch (or so I've been told) but, once again, that's where my fiver is going. The Dutch never actually win anything but they usually lose very gracefully.