THE EURO VS. REALITY

Euro hits a bump on strength of U.S. data: Currency touches $1.19, a record, before slipping back (Eric Pfanner, May 28, 2003, The International Herald Tribune)

Europe's single currency sailed into uncharted waters Tuesday, trading at its highest level ever against the dollar, but ran into headwinds when new evidence underscored the disparity between a weak European economy and the slightly better-off United States.

The euro, which last weak surged past its initial rate against the dollar, on Tuesday briefly traded above $1.19, a level it had never touched in its four years, before ending lower for the day.

Relatively upbeat reports on the U.S. housing market and consumer confidence, following more weak data from the 12-nation euro zone, gave currency traders pause Tuesday, but analysts said the euro's climb could continue unless policymakers take action to stop it. [...]

Analysts say one reason for the euro's rebound is the higher level of interest rates in the euro zone, which provides greater yields to European bond investors who keep their money at home. While the U.S. Federal Reserve has cut its base interest rate to 1.25 percent, the European Central Bank has been reluctant to lower borrowing costs, keeping the comparable rate at 2.5 percent--a policy that has drawn heavy criticism from analysts.

The Central Bank's stubborness, even if a mistake, shows what you can achieve when you eschew democratic controls. They're helping to drive Europe into a recession and receiving rather little heat over it. Posted by Orrin Judd at May 27, 2003 9:54 PM