22 May 2001, 14:02 Buba says euro weakness in Q1 'surprising'
FRANKFURT (AFX) - The renewed depreciation of the euro against the
dollar in the first quarter is "surprising" and apparently showed the
currency exchange rate is influenced less by interest rates and
economic growth differences between the U.S. and the euro zone than by
other factors, the Bundesbank said in its monthly report.
The bank noted that the euro's value recovered by the end of last
year but depreciated by early this year and dipped to 0.88 usd by
mid-May.
"The renewed decline in its value was in many ways surprising," it
said.
It said euro zone economic growth has been more favourable compared
with U.S. economic growth, which partly accounts for the euro-dollar
exchange rate.
It also said that after the U.S. rate cuts, the interest rate
differential has narrowed in favour of the euro.
"The currency exchange rate development in the past months is
apparently influenced less by the actual interest (rate) and growth
differentials than by other factors with varying degrees of importance
...," it said.
It said these factors have influenced the expectations of market
investors regarding trends in the exchange rate.
It noted for example that U.S. interest rate cuts in the first
quarter were seen as a move favouring the U.S. economy, while the new
economic data for the euro zone were perceived to be an indicator of
existing risks in the European economy.
In contrast, it noted that the surprise interest rate cuts made by
the U.S. Federal Reserve in mid-April were taken by many as indicators
that the recession in the U.S. will be stronger and last longer.
It said the euro was again under pressure in the first quarter
after the unexpected favourable figures for U.S. economic growth.
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