Euro advance to be checked

EURO ‘weakness’ against the dollar will be short-lived analysts said yesterday, with forecasters suggesting the euro will average $1.25 this year.

And the euro faltered yesterday to hit a low of $1.2652, its lowest point in a week.

It fell against the dollar in London after Christian Noyer became the third European Central Bank official this week to express concern about its advance.

After he threatened "intervention is something always available" the dollar showed modest gains.

But by late afternoon the euro recovered somewhat to $1.27 and expectations of a dollar recovery are premature. In fact, the market view is that intervention by the ECB and others to halt the dollar's slide cannot be ruled out at this stage.

Adding to concerns about the euro's growing strength Mr Noyer, governor of the Bank of France, said "very sudden moves are never good for global growth".

ECB president Jean-Claude Trichet and German Chancellor Gerhard Schroeder have commented on the 22% increase in the currency over the last year.

Mr Trichet expressed concern with what he termed brutal swings in the exchange rate and Federal Reserve Chairman Alan Greenspan said yesterday the euro region's exporters are "under considerable pressure".

The euro tumbled more than a cent to $1.2652 in early trading following the comments, but most expect the euro to break $1.30 in the near future.

Anti-dollar sentiment has increased since the New Year and the prospect of intervention increases as the slide continues. However, Austin Hughes of IIB Bank says the euro has to hit $1.40 before serious intervention is needed to protect the Eurozone economy.

Niall Dunne of Ulster Bank Financial Markets said nothing can reverse sentiment right now not even yesterday's news that the European Commission is suing France and Germany. "If that didn't change dollar negative sentiment, it's hard to see what will," he said.

Issues such as the jobless recovery in the US are serving to undermine the dollar while across the markets investors point to the growing US current and trade deficits as major negatives.