Dollar likely to stay weak in 2004

A FORMER top Clinton aide has waned the euro could hit $1.50 in the months ahead. His claim at the World Economic Form (WEF) was dismissed as unrealistic and biased.

It highlighted the pressure facing the dollar, however, pressure that is likely to stay in place for many months, experts warned.

So far the euro has failed to hit the $1.30 mark. It came close last week, but then fell as the European Central Bank tried to talk the euro down.

In recent days the euro has regained some of the lost ground and was trading at $1.2698 by late yesterday afternoon. Increasingly, dollar weakness is being projected for the dollar for most of 2004.

That is based on stated US monetary policy and indications that interest rates will stay unchanged in the months ahead.

In a new study of global economic trends, Citigroup said the US and European central banks will leave interest rates unchanged for most of this year.

Reviewing the global economic outlook for the year, Citigroup said the US will do everything in its power to ensure the recovery of the economy stays in place.

Inflation is not a threat and low interest rates will help that aim along with its plan to keep the dollar weak.

In Europe, continuing sluggishness in the economy is still a worry.

The strong euro, up almost 20% against the dollar in the past 12 months is becoming an issue on the recovery front. To raise interest rates would make a bad situation worse for the EU region, Citigroup said in its analysis.

In an extreme situation the review suggests the ECB could be forced to reduce interest rates one more time.

Economists also point out that the stated aim of the US government is to keep the dollar weak.

The US recovery is underway but so far remains jobless. For President Bush that is an election priority and the dollar will be kept weak until it can no longer threaten the economic recovery or Mr Bush's re-election.

Meanwhile sterling hit an 11-year high against the dollar at $1.85 yesterday, boosted by strong consumer figures over the Christmas period.

When the Bank of England meets in two weeks time it will almost certainly raise rates to 4%, British analysts said yesterday.

Apart from the Irish economy, Britain is the other success story in Europe right now and inflationary pressures are becoming an issue.

At the WEF, the OECD's chief economist warned of ECB intervention to halt the dollar's slide if it reaches $1.35.

Already EU officials have said at that level Europe would have to start intervening.

Their main concern is that the huge dip in the dollar will push the EU into recession from which it is struggling to emerge.