Uncertainties hound euro

UNCERTAINTIES over eurozone growth, budget requirements of monetary union and upcoming photo-finish German elections are holding back the euro, confounding predictions earlier this year that it would soar.

The euro is failing to capitalise on the potentially dollar-negative impact of a possible war between the United States and Iraq or from economic woes in Japan.

“From a fundamental perspective, the euro is not gaining support, growth is a major concern for the eurozone,” said Mitul Kotecha, head of global foreign exchange research at Credit Agricole Indosuez. “The euro has failed to sustain its momentum on a move above parity, which does suggest it will continue to struggle.”

The single currency rallied above $1.00 in mid-July for the first time in 29 months, but is not matching up to some analysts’ expectations for a rise to $1.08 or beyond.

It fell below parity with the dollar in late July, and has failed to regain that talisman since. It traded around $0.9750 yesterday.

As an example of analysts’ changing views about currency, Citibank last week revised down its three- and six-month forecasts to $0.98 and $0.96 respectively from $1.03 and $0.99.

Concern about US accounting practices and the performance of US assets hit the dollar against major currencies, including the euro, earlier this year.

Increasing optimism about global growth prospects also helped exports from the eurozone, so boosting the euro, but the accounting issue is no longer such a live one, analysts said, while euro zone growth prospects are being scaled back.