Mon, 18 Sep 2000, 5:37pm EDT Euro Falls Near Record vs Dollar; ECB Buying Seen Insufficient By Mark Tannenbaum

New York, Sept. 18 (Bloomberg) -- The euro fell near a record against the dollar as traders deemed European Central Bank purchases of the currency insufficient, and on expectations U.S. financial assets will continue to outperform Europe.

Europe's common currency fell to an all-time low of 85.10 U.S. cents in Tokyo, before recovering to 85.23, still down from 85.41 Friday. It fell to 91.07 yen per euro, from 91.51 Friday, less than one yen from the record low set a week ago. The single currency has fallen 27 percent against the dollar and 31 percent against the yen since its debut in January 1999.

The euro got a brief boost Thursday after the ECB said it would buy 2.5 billion euros over the course of coming days, using interest earned on its foreign exchange reserves. ECB officials said the action didn't constitute actual ``intervention,'' or buying for the express purpose of turning the euro around.

``The euro is heading for 80 cents,'' possibly within the next two weeks, said Takanobu Igarashi, a market economist at Sanwa Bank Ltd. The ECB probably won't intervene, he said, since if it fails ``there would be no other way to support the currency.''

The euro's decline pulled the deutsche mark down to 2.285 per dollar, its weakest since June 1986.

Gillette

The decline in the 20-month old euro contrasts with the forecasts by 66 banks in a June Bloomberg News survey. The average estimate of the banks said that by the end of this month the euro would be trading at 96 cents and 102 per yen.

``The ECB's attempt to support the currency was not successful,'' said Valerie Plagnol, an economist at HSBC Markets in Paris. There are plenty of reasons for investors to ``stay in the U.S.,'' she said.

Euro weakness is a worry not just for the euro zone, where it threatens to spark inflation as prices on imports rise.

Gillette Co., the Boston-based maker of razors and blades, today said sales will be cut 6 percent in the third quarter, partly because of the euro's drop. Gillette joins a slew of U.S. companies to cite the falling euro as a concern.

The euro failed to get a boost from comments by ECB Vice President Christian Noyer in the French newspaper Les Echos. The euro is ``dangerously undervalued'' and it could see a ``brutal'' reversal, he said.

A record U.S. economic expansion and higher U.S. interest rates continue to draw investors to the world's biggest economy.

Group of Seven

Purchases of U.S. stocks and bonds by foreign investors plus their direct investment in businesses and real estate rose by $222.7 billion in the April-to-June quarter, following a $236.5 billion jump in the first quarter, the U.S. government said.

The U.S. Federal Reserve's benchmark lending rate of 6.5 percent, compared with 4.5 percent in the 11-country euro-area, helps boost the U.S. currency by offering investors a premium on dollar deposits.

Investors now look to the weekend's meeting of finance officials of the Group of Seven industrialized nations in Prague for more clues on possible ECB moves.

European Central Bank council member Ernst Welteke said G-7 countries will discuss exchange rates in Prague.

Still, some economists expressed doubts that the meeting will produce anything to help the euro. The group will probably come up with a statement saying currencies need to reflect economic fundamentals, and that they're watching exchange rates closely, said Stephen Gallagher, an economist at Societe Generale.

``I don't think the G-7 is going to be able to muster up any more support for the euro,'' Gallagher said. The euro is ``still headed lower'' for the next several weeks, he said.

Stable Yen

The dollar and yen have traded in a stable range in recent weeks, even as the euro slid, and that may diminish any sense of alarm toward the euro on the part of Japanese and U.S. finance officials, some economists said.

Today's dollar exchange rate against the yen is not far from its average for the last six months, of 107.09 yen per dollar. In trading today, the dollar slipped to 106.85, from 107.12 Friday.

In advance of the G-7 meeting, investors are also turning their focus to the release Wednesday of the Munich-based Ifo research institute's August survey of business confidence in Germany, as well as the Sept. 28 Danish referendum on whether to adopt the euro.

The euro may fall if, contrary to expectations, the Ifo survey shows a drop in confidence.

A ``no'' vote in Denmark may also hurt the currency, analysts said. Danes opposing the adoption of the euro rose to 48 percent from yesterday's 44 percent, according to a Gallup poll.

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht&s2=blk&bt=blk&s=AOcY3SRW_RXVybyBG

-- Martin Thompson (mthom1927@aol.com), September 18, 2000

Answers

ECB intervention is a joke.

-- Chance (fruitloops@hotmail.com), September 18, 2000.