The euro surged to $1.28 -- just below its all-time high -- on Feb. 11 after Alan Greenspan said the dollar's decline would help narrow the U.S.'s $500 billion-plus annual current account deficit. Currency traders interpreted the Federal Reserve chairman's remarks as tacit approval of a weaker greenback. They now predict the euro will rise to $1.30 by the end of the month. Even so, the European Central Bank isn't likely to intervene. On Feb. 9, Ernst Welteke, an ECB governing council member, said it was important not to "exaggerate the impact of exchange rates on the euro zone's economy." But if the euro rises to $1.35 by midyear, as many forecasters say it will, the ECB will have little choice but to cut rates.
Copyright 2004, Bloomberg L.P.
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