Economic recovery in the euro zone remains untainted so far by the dollar's drop against the euro and is being supported by "very generous" monetary conditions, the Bundesbank said in its monthly report released on Monday. "The dollar's drop against major currencies has not yet damaged the euro zone recovery thanks to the dynamic and stronger-than-expected global development," the Bundesbank said in its February report. "The foreign demand component of the economic recovery remains intact, despite the fact that net demand in the United States economy for foreign goods and services fell in the second half of 2003 on a seasonally adjusted basis," it added. The Bundesbank said this was evidence the U.S. current account deficit had adjusted slightly. But in a thinly-veiled reference to the dollar, it added the risk of "disproportionate or abrupt" currency movements due to global imbalances remained. The Bundesbank wrote monetary conditions in the 12-nation euro zone remained "very generous and do not stand in the way of an economic recovery" and hinted at some concern over the pace of growth in money supply. "The speed of the still strong expansion in M3 has moderated somewhat recently but at the same time one has to make sure the overhang in liquidity is not reflected in higher prices if the recovery gathers further pace," it wrote. However, if the effects of a hike in tobacco tax in France and health reform in Germany were excluded, euro zone inflation in January would have been below the European Central Bank's self-set two percent ceiling, it noted.//