MercoPress. South Atlantic News Agency

US dollar reaches new low against the Euro.

The US dollar ended the week with a record low against the Euro (1,2910 to the Euro) with analysts forecasting further decline.

Analysts believe the Bush administration will keep a weak dollar to increase exports, and firm efforts to bring down the US budget soaring deficit are still to be seen.

The drop in the dollar came in spite of positive jobs data from the US Labor Department.

This week the European Central Bank left basic rates unchanged at 2% and president Jean Claude Trichet was insistently questioned about the US-Euro exchange rate, particularly the "volatility" of the US currency.

"On the exchange rates I would only say that we all signed the Washington communiqué: the Secretary of the US Treasury and the President of the Federal Reserve System, as well as European counterparts, including myself. It captures the present sentiment of the G7 community. Thus we all signed, and I signed in particular, the sentence stating that "excess volatility and disorderly movements in exchange rates are undesirable for economic growth".

However, "I would also mention that I read with great interest the reiteration a few days ago by the Secretary of the US Treasury that the policy of the United States in this respect remains the policy of a strong dollar".

Further on Mr. Trichet indicated that the unanimous sentiment of the ECB Governing Council regarding the twin deficit of the US (budget and trade) respond to a lack of savings in the US.

"We don't disagree with the US on that, it is a joint diagnosis which is made by both our US friends and ourselves that there is a lack of savings in the US. The correction of this lack of savings is, I would say, the "homework" of the US, while we have our own homework, which is structural reforms and making our economy more flexible and more resilient".

"On both sides of the Atlantic we have assets and liabilities and we all agree on these: our own assets are that we are balanced and we are financing our own investment with our own savings, while the US is not; by contrast, the assets of the US are that they have a very flexible and a very resilient economy and I would say they are permanently proving that in the present conditions of the global economy. So, all that being said, in our own analysis it is very important that the US progressively, but I also would say efficiently and effectively, correct this lack of savings, which would of course reduce the domestic and external imbalances per se. We agree on that, the problem is the delivery on both sides of the Atlantic".

Finally Mr. Trichet said that inflation in the Euro zone is likely to remain significantly above 2% in the coming months. "This is a worrisome development, but there is no strong indication as yet that medium-term inflationary pressures are building up in the euro area. In particular, wage growth appears to remain limited, in the context of ongoing moderate real GDP growth and weak labour markets".

"To sum up, the economic analysis suggests that underlying inflationary pressures are still contained, but a number of medium-term upside risks to price stability need to be monitored closely. It is particularly important that these do not affect long-term inflation expectations. However, if oil prices were to remain at current levels, or even increase further, they would dampen the strength of the recovery both inside and outside the Euro area".