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Montevideo, May 25th 2022 - 13:25 UTC

 

 

Still stronger Euro ahead.

Monday, January 12th 2004 - 20:00 UTC
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The Euro is expected to continue its strong appreciation against the US dollar and could easily breakthrough the 1,30 psychological benchmark according to market analysts following the latest US labour market data released last week and the European Central Bank's decision to keep basic interest rates unchanged at 2%.

Unemployment in the US actually dropped two tenths during December from 5,9 to 5,7% but the number of new jobs created was far lower than expected: a thousand, compared to the 43,000 of November.

Last week the Euro rise to record levels against the greenback had prompted Germany's Economy and Labour Ministers to publicly call for a rate cut, but the European Central Bank, ECB, didn't respond to the request.

In the first press conference of the year, January 8, ECB president Jean.Claude Trichet said that following "our regular economic and monetary analysis, we continue to judge the current stance of monetary policy as appropriate to preserve price stability over the medium term; accordingly, we have decided to leave the key ECB interest rates unchanged at their low levels", adding that indicators point to an ongoing economic recovery in the euro area and, "although recent exchange rate developments are likely to have some dampening effects on exports, export growth should continue to benefit from the dynamic expansion of the world economy. Import price developments in the euro area should become somewhat more favourable, thereby helping to contain inflationary risks. We will continue to carefully monitor all developments that could affect our assessment of risks to price stability over the medium term".

Earlier that day Germany's Economy Minister Wolfgang Clement said that "the Euro strength and the dollar's weakness are the biggest risk to growth at the moment", and "I'm of course thinking about an interest rate cut".

The ECB has forecast growth will be between 1.1% and 2.1% in 2004, double its best expectations of 0.6% in 2003. The Bank of England earlier held rates at 3.75%, adopting a wait-and-see policy after November's quarter-point rise, which was the first upward move in interest rates for nearly four years.

Mr. Trichet admitted that on the external side, "recent exchange rate developments are having a negative impact on the price competitiveness of euro area exporters, but thus far this should be partly compensated for by the ongoing expansion of global demand. Private consumption should receive support from real disposable income growth, partly due to favourable effects on terms of trade and inflation stemming from the past appreciation of the euro".

"The short-term risks to this outlook remain balanced. Over longer horizons, the uncertainties continue to be related to persistent external imbalances in some regions of the world and their potential repercussions on the sustainability of global economic growth. This is a challenge to be addressed by sustainable macroeconomic policies and structural reforms which foster a sound balance between savings and investment in all major partner countries, enhance the production potential in the euro area and support a further expansion in trade of goods and services at the global level".

Regarding price developments, "HICP inflation rates over the short term are still expected to fluctuate around the 2% level, following a rate of 2.1% in December, according to Eurostat's flash estimate".

Categories: Mercosur.

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