By Anna McLauchlin - 12th February 2004
The euro is approaching a new historic high against the dollar following news that the US is unlikely to hike interest rates in the immediate future.
US Federal Reserve chairman Alan Greenspan indicated on Wednesday Washington is happy with the dollar's weak levels.
"With inflation very low and substantial slack in the economy, the Federal Reserve can be patient in removing its current policy accommodation," he said.
Early Thursday morning the euro was touching 1.28 against the greenback as the market reacted to the news, not far from its all-time high of $1.29 reached last month.
"The key word here is 'patient'", said Filiep Wyseur, forex strategist at Fortis Bank.
"This opens the door for new record euro highs against the dollar but we were expecting that even before Greenspan's comments."
A huge US current account deficit has weakened the dollar and an interest rate hike could shift investor interest back to the American currency.
But recent unemployment figures have shown that the US economy is still sluggish and a rate increase would challenge American growth even further.
The consensus, Wyseur said, does not expect the US to change its policy until June or July at the earliest.
Meanwhile in its latest monthly bulletin, the European Central Bank too maintained its position on European interest rates, calling its two per cent key interest rate "appropriate" in the medium term.
Echoing its last statement on the dollar/euro exchange rate the central bank again stressed its concern over "excessive exchange rate moves."
But a similar statement after the G7 meeting in Florida last weekend shows both European and US leaders are for the time being prepared to put up with the status quo.
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