Beleaguered Euro Sinks to Fresh Low

LONDON -- The euro fell to a lifetime low of $1.0330 on Wednesday amid gloom over the euro zone economy and belief that the European Central Bank was unlikely to act soon to stem the currency's slide.


ECB President Wim Duisenberg failed to throw the euro a lifeline, saying after a regular council meeting of the bank that it should "keep doing what it is doing."


A leading German economist predicted the euro would slip to parity with the dollar within days, but expected the euro to rebound strongly in the coming months.


Wall Street fell in morning trade, putting pressure on European shares after strong U.S. home sales data reinforced concerns that U.S. interest rates are set to rise.


"This is very troubling," said Hugh Johnson, chief investment officer of First Albany Corp.


The housing data pushed U.S. Treasuries to session lows. European bond markets also came under pressure from U.S. rate concerns, although dealers said the weak euro was also weighing on European assets.


The euro's losses leave it more than 13 percent below the peaks it set after its launch at the beginning of January. It is also close to the highest point the dollar has reached against the German mark in a decade.


Duisenberg expressed confidence the euro would strengthen, but declined to comment on foreign exchange intervention or whether the euro would hit parity with the dollar. The ECB kept euro zone interest rates steady at the meeting.


"He's trying to send a message that the prospects ahead are favorable, but they're not going to be concerned by short term movements in the currency," said Lisa Finstrom, senior currency analyst at Solomon Smith Barney. "They're focused more on medium to long-term policy."


The euro was slipping primarily because of the strong U.S. economy, Ulrich Hombrecher, chief economist of Westdeutsche Landesbank (WestLB), said in the advance text of an interview due to appear Thursday in the Westdeutsche Allgemeine Zeitung.


"It's only a matter of days," Hombrecher said of the euro's slide towards parity with the dollar. Even though confidence in the European currency had been damaged, Hombrecher warned against panic reactions.


The euro could climb back to around $1.07 in the autumn and reach $1.12 by the end of the year, he said.


The euro also fell against the pound with the five-month-old currency dropping to a lifetime low of 64.19 pence per euro.


U.S. interest rate rise concerns were fanned by data showing U.S. new home sales in April grew faster than expected, reinforcing the inflation risks raised by Tuesday's strong National Association of Purchasing Management report.


The data pushed the Dow Jones industrial average down by around 1 percent or 100 points in morning trade.


Germany's Xetra DAX index see-sawed before closing up 0.59 percent as traders complained of low volume. The index of 30 blue-chips shot into positive ground in the final minutes of trade.


Britain's FTSE 100 index ended 0.8 per cent up as news of merger talks between British Steel and Dutch firm Hoogovens boosted sentiment.


The blue chip index was helped by gains in a handful of heavyweight stocks, mainly in the drugs sector.


Britain's Confederation of British Industry distributive trades survey showed retail sales in May grew at a slower pace than April but the underlying trend in sales growth edged up and the outlook for June was the most positive since July last year.


Paris stocks ended up 0.04 percent with a late rise wiping out losses.