Europe's financial markets have surged ahead following the arrival of the euro, with the first day's trading since the single currency's arrival dominated by sharp rises in share prices in euro member-states.
The euro, meanwhile, traded steadily on the international currency markets, gaining some ground against the US dollar and sterling. Analysts believe that if the currency remains strong, a further reduction in interest rates could be on the way.
As investors got their first chance to react to the euro's arrival, the main moves were in EU share prices, with markets in Germany, France, Spain and Italy all gaining over 5 per cent. In Dublin, share prices - denominated in euros only - were over 1.6 per cent higher and dealers expect further gains as European and American investors bid for the bigger Irish stocks such as AIB, Bank of Ireland and CRH.
But London, Europe's biggest stock trading centre and outside the euro zone, fell behind as cash flowed into blue chip shares in euro markets, with telecommunication stocks leading the charge.
Dealers said the strong gains on euro stock markets were noteworthy as they occurred against the background of a modest rise in the value of the euro against the dollar. Normally, when European currencies rise against the dollar it tends to depress European stock markets but that was not the case yesterday, as investors appeared to be betting on a successful economic performance across the euro countries.
Analysts pointed out that Europe this year should see not only positive economic and corporate earnings growth but also low inflation and possibly lower interest rates. However some questioned whether yesterday's rally could be maintained and said that the bout of "euro-phoria" could be shortlived.
On the currency markets, the euro gained ground against the US dollar to around $1.18 and rose to 71.07p sterling. This means that the pound is valued at over 90p sterling. The euro's gains increased speculation that further interest rate cuts could be on the cards over the coming months.
A strong performance by the currency could persuade the European Central Bank (ECB) to reduce interest rates further, particularly if economic growth in continental Europe slows. The ECB now sets interest rates for all euro states, so any reduction would knock on to further declines for Irish borrowers and savers.
Trading in most currency markets was relatively quiet as investors merely dipped their toes in the water, nervous as their banks continued to check that their trading systems and spreadsheets were coping with the conversion after a weekend of intense preparations. However the euro appeared to win immediate acceptance on major European markets, although most currency deals in Dublin were still transacted in pounds.
Most analysts said they expected the currency to continue to strengthen, although at the moment they are wary that the European Central Bank could step in and stop it rising too quickly.