Euro pauses on road to parity with ailing dollar

 

The euro held steady at 98 cents against the dollar yesterday with analysts predicting it will take further developments in the US to drive the European currency towards parity once again, Siobhán Creaton, Finance Correspondent

Economic data from the US due next week or another disclosure of corporate fraud at a major US public company could be sufficient to boost the euro's strength sufficiently to bring it to parity with the ailing dollar, according to analysts.

Mr Ernst Welteke, president of the Bundesbank and a member of the European Central Bank's policy-setting governing council, said the rise in the euro was not a cause for concern and would help put a lid on price pressures in the euro-zone economy.

Speaking to reporters after a meeting of the Bundesbank's central council in Rostock yesterday, he said the surge in the euro against the dollar and other currencies was the long-awaited "correction" of previous distortions on the foreign exchange markets that European monetary officials had predicted.

Yesterday, currency options prices and charts showed the euro still had a few hurdles to clear before it could climb convincingly above the tantalising one-to-one rate with the dollar.

Analysts say the speed with which it has scaled these heights could be the biggest stumbling block to regaining parity.

"The euro has been rising without any significant retracement from around $0.88 since mid-April. So the risk of retracement is very high, if not a sharp pullback," said Mr Niels Christensen, currency strategist at Société Générale.

Mr Niall Dunne, economist at Ulster Bank Group Treasury, said the dollar's fortunes were now directly linked with US equity markets. He believes the euro will appreciate and has the capacity to move above parity but suggests it may be some time before this happens.

- (Additional reporting, Reuters)