BRUSSELS, Jan 20 - Euro zone finance ministers sat tight as the euro started creeping upwards against the dollar on Tuesday despite an overnight statement where ministers and the European Central Bank voiced fears over currency volatility. The statement crowned over a week of "verbal intervention" by Europeans to try to tame the euro, saying the euro zone was worried about big currency swings. However, they did not say what they would do if financial markets ignored their warning. It showed a united stand ahead of a key February 6-7 meeting in Florida of the Group of Seven economic powers, where the United States is nonetheless expected to offer little solace to European worried that a surging euro could choke their economy.
Among others attending a second day of talks among European ministers in Brussels, Dutch Finance Minister Gerrit Zalm seemed determined to see what impact the statement might have and would not be drawn into commenting further on the euro exchange rate. "That is up to the market," he told reporters. "We have a nice statement." The euro rose in early morning trade, trading near $1.2485 in early European trading, 1-1/2 cents above one-month lows set on Monday.
It had shed five cents in a week after hitting the record peak just short of $1.30 last week after a rash of declarations of concern from ECB chief Jean-Claude Trichet as well as leaders in France, Germany and other big euro zone capitals. "The Ecofin comments did not sound tremendously concerned about euro strength which means the language at the G7 regarding dollar weakness may also be fairly soft," said Michael Klawitter, senior currency strategist at West LB. "This is helping the euro higher". Markets are always nervous ahead of meetings of the G7 -- the United States, Japan, Canada, Germany, France, Italy and Britain -- for fear those countries could use their currency reserves or word-power to influence exchange rate levels and counter the bets of traders in a market where billions change hands daily. Other analysts said the euro's bounce was also technically driven after it recoiled five cents from its record high. "Euro selling stopped at the first major retracement and the move above $1.2425 signalled a short term bottom had been reached," said Ian Gunner, head of currency research at Mellon. With a key G7 finance ministers' meeting now just over two weeks away, analysts said policymakers in the euro zone and Japan were preparing their positions.
"It's significant (the Europeans) pulled together and got a cohesive view. It's more in harmony to be saying they don't like volatility," said Paul Mackel, currency strategist at ABN Amro in London. The joint statement issued in Brussels said the euro zone was sticking to the position that the euro should trade in line with economic fundamentals in the medium and long term. But the ministers and the ECB made no mention of the "strong and stable" euro mantra previously used, and instead they stressed their discontent about the pace of euro gains, which they fear risks choking exports and stunting economic recovery.
"In the present circumstances we particularly stress stability and we are concerned about excessive exchange rate moves," said the statement. "We will continue to monitor the situation closely, and conduct policies supporting economic recovery in a stable macroeconomic environment." They spoke of no contingency plans for tackling any fresh bout of volatility in currency markets. "There was no view expressed tonight on that particular matter," said Irish Finance Minister Charlie McCreevy, who was chairing the talks. While the Germans, Italians and French are part of both the euro zone and G7 group, experts see little chance of the United States backing some form of intervention to bring the dollar back up in value versus the dollar. A weak dollar helps U.S. exports and the economy in what is an election year for President George W. Bush.//