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Euro falls below $1
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December 2, 1999: 5:48 p.m. ET
Regional currency slides below parity with dollar in blow to Euro-zone.
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - Europe’s fledgling single currency, the euro, traded below $1 Thursday, a remarkable feat for a currency that less than a year ago was touted as possible challenger to the U.S. dollar and the Japanese yen.
The decline, which experts attributed to concerns that Europe is not moving fast enough to improve its competitiveness, is good news for American tourists because it makes travel less expensive. However, it’s generally bad for U.S. exporters because European exports are now cheaper.
At about 4:40 p.m., ET, the euro fell to $0.9997 from $1.00083 Wednesday before recovering to $1.0015.
Since its launch the euro has fallen about 15 percent
One analyst called the move’s significance more psychological than fundamental.
"It’s a headline-grabbing event, but is doesn’t mean anything economically,” said Bob Lynch, currency strategist at Paribas, who noted the fall below dollar parity was long anticipated. "What would be more significant is if it continued to slide.”
Earlier, the European Central Bank declined to intervene in currency markets to defend the euro, choosing instead to leave interest rates unchanged and keep its growth target for money supply unchanged. Raising the growth target would have suggested the bank was loosening its stance on inflation, which could have put further pressure on the euro.
ECB president Wim Duisenberg said the euro had the potential to appreciate provided that the ECB maintains a tough anti-inflation stance in its monetary policy.
"We do believe that if we can get that message across...that that in itself will show that the euro has a strong potential to appreciate," he said
Duisenberg added that, in his view, the exchange movements between the euro and the dollar were "not inexplicable,” suggesting that as the growth gap between the United States and Europe narrows, the euro will have more leeway to rise.
Inauspicious beginnings
Eleven European nations formed the euro on Jan. 1 in an ambitious effort to create a regional economic and monetary union. However, since hitting a high of $1.18, the currency has been declining steadily against the dollar as doubt emerged over the strength of the 11-nation region’s economy.
The doubts about European strength were exacerbated by the buoyancy of the American economy, where economists expect the nation’s gross domestic product grew at about a 5 percent rate over the last six months of 1999.
In explaining the euro’s prolonged drop, analysts also mention concerns that the French and German governments had meddled in European corporate merger activity, casting doubt over their commitment to unfettered markets.
Still, the day’s move by the euro, now that it’s over with, may represent a turning point.
"I do agree with (European Monetary Union) officials that there’s upside potential,” said Alex Beuzelin, market analyst at Ruesch International.
And a weak euro is not necessarily bad, because it makes exports from the euro nations -- Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain -- less expensive.
The euro currently exists only for electronic transactions, recognized by banks and financial markets. In 2002 the 11 member nations will replace their currencies with euro notes and coins.
-- with additional information from wire services 
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European Central Bank
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