Euro holds gains as investors await ECB rate meeting

The euro has held on to most of its recent gains on the foreign exchange markets, as investors await the outcome of today's European Central Bank meeting.

The currency eased back just slightly against the dollar to end European trade at just below $1.1350, but it rose to a new four-year high of just over 71p sterling.

The euro's recent strength has led for renewed calls on the European Central Bank to announce an interest rate cut at today's meeting. The strength of the euro will hinder growth in Europe by damaging export competitiveness and should bring down inflation by cutting import prices.

Buying of the euro was limited yesterday after disappointing German economic news.

The single European currency surged at one point to $1.1419 before slipping back to $1.1337 in late trade.

The latest German unemployment figures, published yesterday, suggested that activity in the euro zone still lagged behind that in the United States. Federal Labour Office data showed an increase of 44,000 to 4.46 million in the number of people seeking work in April, a 13th straight monthly rise.

The figures, which were roughly in line with analysts' predictions, equate to 10.7 per cent of the working-age population against 10.6 per cent in March.

Weighing on dollar sentiment,meanwhile, was an assessment on Tuesday from US Federal Reserve policymakers that risks to the US economy were weighted toward weakness in the foreseeable future.

In Britain, sterling is suffering from fears about the outlook for the economy and expectations that the Bank of England could soon move to lower interest rates again.

The rise of the euro against sterling led to another increase in the Central Bank's nominal trade weighted competitiveness indicator - an index published each day designed to measure the euro against a weighted basket of the currencies with which Ireland trade. The index topped 101.50 yesterday, almost 10 per cent up on a year earlier and its highest level since just after the euro's physical launch in January 2002.

The strength of the euro against sterling will lead to particular problems for exporters to the UK. Enterprise Ireland figures show that 44 per cent of the indigenous sector's exports go to the UK market.

Among the sectors affected, according to Mr Gerry Murphy, executive director with Enterprise Ireland, are consumer products, paper,+ print and packaging and prepared foods.

Many companies had concentrated on the buoyant Irish, British and US markets in recent years, he said. However, Enterprise Ireland had been working for some time to get exporters to concentrate more on euro-zone markets and this was now becoming more urgent for many companies.

Scandinavian markets were more buoyant at the moment, he said, while companies were also winning new business in Central and Eastern Europe, particularly in electronics and automotives.