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Currencies: Just Another Lousy Day for the Euro as Plunge Deepens

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Another day, another record low for the euro.

Any hope that the beleaguered single currency would enjoy a profit-taking bounce after yesterday's 2% fall has so far proved futile. After a brief pop above $0.87, the euro has made new lows at $0.8630 and is opening in New York around $0.8670. As usual these days, a range of other currencies is also being dragged lower with the euro. Even the yen has tended to trade without much direction vs. the dollar, despite recording a steady series of new highs in euro terms.

"I think we're continue to see the market we've been seeing in recent times," said Michael Derks of

Commonwealth Bank of Australia

. "The dollar and the yen will be strong and there'll be record lows in a number of others," he added.

Again the issue driving the euro lower is not so much economic performance -- which is seen as adequate -- but is centered in political confusion. Traders continue to focus on damaging comments made earlier in the week by German Chancellor Gerhard Schroeder who said that the euro's current level is "not a cause for concern." Yesterday, the position was exacerbated by a German government spokeswoman who repeated that view word-for-word.

Trying to offset Schroeder's comments, the German government has contributed another assessment to the debate. "Germany is interested in a strong euro. All other interpretations are absurd. The euro's current weakness is a temporary one which has gone on far too long," said a

Finance Ministry

spokesman, Torsten Albig in a media interview.

There was no clear picture in the euro-zone economic data published today.

GDP

in France for the second quarter was up 0.7%, below expectation of a rise of 1.1%. German inflation for August declined 0.2%, for a year-on-year rise of 1.8%.

Industrial output

in Germany rose a very strong 3.5% in July. Finally,

consumer confidence

in Italy rose 1.5% to 124.5 in August, the highest reading since May 1998.

Two of the euro's public defenders, French Finance Minister Laurent Fabius and his German counterpart Hans Eichel discussed the euro's fall according to a French government official. Apparently, they agreed that the, "economic fundamentals were not reflected in the current exchange rate." Euro-zone finance ministers are meeting tomorrow in Paris and there is a possibility that a formal statement on the currency will be issued.

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The yen alone has been able to resist the dollar's inroads. This morning dollar/yen is weaker at 105.25, two thirds of a yen firmer than last night's close at 105.90.

Clearly, the euro/yen cross has made a series of new record lows and is now opening at 91.25, more than 1% lower than earlier in overseas trading. The

Bank of Japan

is not happy with this yen strength and indicated that it would," take needed measures as necessary," said Zembei Mizoguchi, an official spokesman.

Sterling is also under selling pressure from the strong dollar. The pound is opening at $1.4330, a 1.5% fall since Thursday's close. The euro has lost ground to the pound and is opening at 60.45 pence.

The

Monetary Policy Committee

of the

Bank of England

left U.K. interest rates unchanged this morning. Clearly, the signs of slowing in the U.K. economy outweighed any other issues.

The Swiss franc has slumped again, to open at 1.7850. The euro/Swiss franc rate is unchanged at 1.5470,as the market is not differentiating between the euro and the Swissy.

The Canadian dollar is lower at C$1.4830.

The Australian dollar has dropped to a five-year low of $0.5550, more than a cent below yesterday's levels. The

Reserve Bank

was rumored to have intervened on behalf of its currency. "There has been no confirmation of actual intervention, though they may have been checking prices," said Derks.

The New Zealand dollar has followed its Australian counterpart and is 2% lower at $0.4140.

The South African rand is much lower at 7.15/dollar as the euro loses ground.

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