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Battered euro retreats from dollar parity

NEW YORK: The euro sagged against the dollar on Monday, falling within a hair's breadth of $1.00 and ending down from Friday's closing level despite a smart comeback in late US trading as heavy losses on Wall Street pummeled the dollar.

Europe's single currency had dipped to a seven-week low of $1.0001 in early US trade, hit by market disappointment that the Group of Seven rich countries had failed to mention the euro's weakness at the weekend.

It then pared its losses, making fresh highs for the day near $1.0070, as the New York session wound down and the Dow Jones industrial average tumbled more than 2.0 percent.

"People had been buying dollars all night since the G7 communique came out," said Ben Strauss, vice president at Bank Julius Baer. "Now with the Dow down, people are being forced...out of the dollar."

But the beleaguered euro was still off its $1.0089 Friday close, and dealers said it remained on target for one-on-one parity with the dollar in the days to come.

"I think we're going to go through parity," said Paul Podolsky, currency strategist at BankBoston. "I think we would be through it today, if the Dow were having a flat-to-up day."

The euro started falling in Asian trade after G7 central bankers and finance ministers avoided specifically mentioning the euro at the close of their weekend summit.

"Nobody expected much (from the G7) but there may have been some hopes there would be something a little more positive on the euro," said Bob Sinche, currency strategist at Citibank.

The euro, under pressure since its January 1999 launch amid concerns about Europe's economic outlook, had briefly breached the psychologically significant $1.0000 level in December.

A lack of verbal support from European officials following the G7 meeting was interpreted by the market as evidence of so-called benign neglect, compounding the negative tone.

Bundesbank President Ernst Welteke said earlier on Monday the euro the potential to strengthen against other currencies near term, but added he was not worried by the post-G7 sell-off.

"If they don't care about the euro level, why should we?" said Greg Schwake, assistant vice president at Commerzbank.

Other market watchers agreed: "They seem to be giving the market the green light to sell euros," said Mike Malpede, senior foreign exchange analyst at Refco Group. "I think any breaks below parity will be short-lived, but there's no incentive for it to go up."

But Sinche said the euro's downside was limited by an improving fundamental picture in the 11-member euro zone. The psychological importance of parity has lessened since the market had already visited that level, he added.

"We think the euro is at pretty good levels to take up some euro exposure and that cyclically things look better for Europe," Sinche said, pegging the current trading range at between par to around $1.05.

The dollar got a boost against the Japanese yen from the G7's statement, which repeated a mention of the group's shared concern about the impact a higher yen could have on Japan's economic recovery.

The greenback stood at around 105.55 yen, up about 0.8 percent from last Friday's close.

But analysts said the gains may be fleeting, because the wording added little to previous statements on the yen and likely lacked the force to change the yen's strengthening trend. In particular, the chances of a joint yen-selling intervention appeared to be limited.

"One thing is talking about the yen's strength, (another) thing is to actually intervene to break that strength," said Daniel Moreno, currency strategist at Dresdner Kleinwort Benson in Frankfurt. "Since they did not mention intervention, it is quite unlikely they are going to do anything."-Reuters