ECB, Germany Insist that Euro Will Rise in Value Against Dollar
October 28, 2000 - 0:0
FRANKFURT The euro will rise against the dollar in future, German Finance Minister Hans Eichel and European Central Bank chief economist Otmar Issing both insisted on Friday.
"The current euro exchange rate does not reflect the strength of the European economy," Eichel said in a speech prepared delivered to the German Parliament on Friday.
"The euro will rise again in value against the dollar in the medium term." A similar belief was expressed by Issing in an interview published in the Friday edition of the daily Frankfurter Allgemeine Zeitung, in which he also hinted at the possibility of renewed Central Bank intervention to prop up the sickly currency.
The euro had tumbled to a record low of 0.8230 dollars on Thursday, but firmed slightly to trade at 0.8295 dollars in Tokyo on Friday, AFP reported.
Part of the problem was that the markets acted primarily according to short-term considerations, Issing argued.
"Many dealers entered positions which, in the short term, proved to make a loss. That has contributed to the downward movement.
But it does not change the fact that the valuation of the euro will be much higher in future than it is today." Issing insisted that so-called herd instinct forced many market players to sell the euro against their better judgement.
"Many players are forced to take part, even if they believe that the movement is exaggerated. Because no-one can know exactly when the turnaround will come, the day-to-day pressure to act is often so strong that you can't take the day after tomorrow into consideration otherwise you could be sacked." One of the main reasons behind the continued weakness of the currency was that economic growth in the U.S. had accelerated and not slowed as many people had expected, Issing argued.
Furthermore, growth in the euro zone had disappointed slightly, even though the region's economy was doing better than might have been expected under the circumstances.
"Alongside the almost overwhelming reports of success in the U.S., the good European data looked pale. The exchange rate reflects that gap," Issing said.
Strong U.S. growth acted as a magnet to international capital, as investors expected a "dream return" on their money.
That could be seen clearly in the vast flow of capital of about 140 billion euros out of the 11-country euro zone in 1999, Issing argued.
"The current euro exchange rate does not reflect the strength of the European economy," Eichel said in a speech prepared delivered to the German Parliament on Friday.
"The euro will rise again in value against the dollar in the medium term." A similar belief was expressed by Issing in an interview published in the Friday edition of the daily Frankfurter Allgemeine Zeitung, in which he also hinted at the possibility of renewed Central Bank intervention to prop up the sickly currency.
The euro had tumbled to a record low of 0.8230 dollars on Thursday, but firmed slightly to trade at 0.8295 dollars in Tokyo on Friday, AFP reported.
Part of the problem was that the markets acted primarily according to short-term considerations, Issing argued.
"Many dealers entered positions which, in the short term, proved to make a loss. That has contributed to the downward movement.
But it does not change the fact that the valuation of the euro will be much higher in future than it is today." Issing insisted that so-called herd instinct forced many market players to sell the euro against their better judgement.
"Many players are forced to take part, even if they believe that the movement is exaggerated. Because no-one can know exactly when the turnaround will come, the day-to-day pressure to act is often so strong that you can't take the day after tomorrow into consideration otherwise you could be sacked." One of the main reasons behind the continued weakness of the currency was that economic growth in the U.S. had accelerated and not slowed as many people had expected, Issing argued.
Furthermore, growth in the euro zone had disappointed slightly, even though the region's economy was doing better than might have been expected under the circumstances.
"Alongside the almost overwhelming reports of success in the U.S., the good European data looked pale. The exchange rate reflects that gap," Issing said.
Strong U.S. growth acted as a magnet to international capital, as investors expected a "dream return" on their money.
That could be seen clearly in the vast flow of capital of about 140 billion euros out of the 11-country euro zone in 1999, Issing argued.