Central Banks

Euro rises on hopes for peace in Kosovo

PUBLISHED : Friday, 04 June, 1999, 12:00am
UPDATED : Friday, 04 June, 1999, 12:00am


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Optimism for an international peace deal in Kosovo saw the euro stage a sharp rebound yesterday after plumbing new depths against the US dollar on Wednesday.

The euro rose to $1.0394 in early London trade - off a fresh low of $1.0303 - amid reports that the Serbian parliament had voted in favour of the Russia-Nato peace plan. However, it slipped back to $1.0326 in early afternoon trade in New York.

Traders said there was a two-way pull among investors. Sellers were pointing to Europe's poor short-term growth prospects and buyers focusing on rapid developments in the Serbian capital Belgrade, where Russian envoy Viktor Chernomyrdin helped broker the peace deal.

'At the moment there is clearly a battle against the negative psychology towards the euro, and the rather intransigent attitude of the European Central Bank (ECB) on the negative side,' said Steve Barrow of Bear Stearns.

'But on the positive side there is hope that Mr Chernomyrdin is managing to reach a peace deal in Belgrade, where the signs seem to be really positive.' While reports emerged that Serbia had grudgingly accepted an international peace plan on Kosovo, Western officials expressed caution on any agreement until an official statement from Yugoslavia was received.

Analysts said that the prospects for the euro were also not assured, even if a peace agreement was reached, given that the impact of the Kosovo crisis on the currency was only limited.

'During the course of the year, the euro lost more of its value against the dollar before the bombing,' one said.

The euro also received a boost from German Chancellor Gerhard Schroeder.

He said yesterday that European Union leaders had no interest in a weak euro, and that growth and stability went together.

Speaking on the first day of the EU summit in Cologne, Mr Schroeder said: 'Nobody here has an interest in keeping the euro weak.' The EU will consider a motion to keep European finance ministers from talking about the euro's value in an attempt to shelter the currency from negative pressure.

The motion would ensure that only ECB officials would be allowed to publicly comment on the level of the euro.

The multitude of voices that have spoken about the currency is seen as confusing markets, and has not helped the performance of the euro.