Euro Hits New High Against Dollar

The euro's rise against the dollar reflects market confidence in the single currency, German finance minister Hans Eichel said today.

Making the most of the euro's recent gains against the greenback, Mr Eichel said that its rise also reflected Europe's sound fiscal policies.

"Confidence in the euro zone compared with the dollar zone is growing. That is reflected in the exchange rate," Mr Eichel said on the margins of an EU summit meeting in Seville, Spain. The euro hit a fresh two-year high against the dollar above $0.96 on Friday, but analysts say the shift in currencies reflect concern over the American economy rather than any confidence in the eurozone.

The dollar fell to two-year lows against the euro and seven-month lows against the yen on Friday, amid growing concern about the US current account gap and weak US shares. The US current account deficit - the broadest measure of foreign trade - swelled to a record $112.5bn (£74.8bn) in the first three months of the year, as money shifted out of American assets.

The greenback has fallen 8.5% against the euro this year, declining four cents in just a month. It has lost nearly 7% against the yen, prompting speculation that Japan will intervene to stop the yen rising to help Japanese exporters.

A gradual slide in the dollar should help US exports and contribute to American growth, on which the rest of the world economy relies. What is a matter for concern, however, is an uncontrolled fall in the dollar - and currencies have a notorious tendency to overshoot in one direction or another - which would destabilise the international financial system.