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N° 193 |
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| September 2000 |
| The Euro's Surprises |
| Agnès Bénassy-Quéré |
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| On 22 September last, the ECB and the Fed
intervened to support the euro, which had fallen to $0.84. Two years previously,
most economists had guessed that the euro would be a strong currency. They were
optimistic about the outlook for growth in Europe and worried over the prospects
of America's trade deficit. Accordingly, they felt that the euro would provide
an attractive alternative investment to the dollar. In practice, the strength
of the American economy, boosted by the New Economy, has attracted record investments
across the Atlantic. Trends in the real economy continue to play a vital role
in setting exchange rates. The capacity of the euro-zone to enter this "New Era"
will largely determine the future parity of the single currency. In the short
term, better predictability of European policy would help to reduce the uncertainties
that currently penalise the currency. |
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