8 October 2001, 13:27  FOCUS Euro gains from US-led air strikes to be short term

---- by Victoria Main ----
LONDON (AFX) - The euro's rise against the dollar due to the US-led air strikes launched yesterday in Afghanistan is likely to be of short duration, according to economists.
Economists said the euro is not expected to benefit for long from safe-haven flows without any escalation of military action in response to the terrorist attacks against the US on Sept 11.
"The immediate impact is that the military action is not beneficial for the dollar, and therefore we think that the euro will benefit from this environment," Standard Chartered economist David Mann said. "The euro is up quite strongly this morning, and that trend is likely to continue but only in the short term," he said.
Mann predicted the euro will reach 0.933 usd over the next few weeks, adding: "That depends however on how much more military action is required and how long it lasts."
However, WestLB's Michael Klawitter said that despite the euro's rise against the dollar this morning, he expects the single currency to remain within the 0.91-0.925 usd range.
"I believe the dollar will remain relatively solid," he said. "There has been the initial reaction that we are seeing, but I don't expect this to last," he said, noting the steady performance of equity, gold and oil prices this morning.
Bank of America economist Jeremy Hawkins agreed: "This could be one of those instances in which markets get very fickle very quickly." He said the military action came as no real surprise and is therefore unlikely to have a lasting effect on currency levels. Economists also suggested that this morning's fatal plane accident at Milan's Linate airport will do little to satisfy investors' appetite for risk-aversion.
"That's not going to help boost confidence in Europe. So, in this environment, we are looking for the dollar to weaken but we are not expecting the euro to stay strong for long or to make huge gains," Standard Chartered's Mann said.
Hawkins, of Bank of America, said however that the euro could take off this afternoon if US equities open sharply lower. "Any sharp fall in US stocks will obviously weigh on the dollar and benefit the euro," he said.
At 10.20 am, the euro traded at 0.9294 usd.

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