Mark Milner Thursday November 20, 2003 The Guardian
The dollar slumped to a new low against the euro yesterday, hit by the fall-out from "bra wars", a developing trade row between the US and China over textile import quotas.
As the greenback headed towards $1.20 to the euro, politicians and business leaders warned that the appreciation of the single currency could hit Europe's fragile economic recovery.
"If the euro stays lastingly around 1.20, that could present problems for our economy," the French finance minister, Francis Mer, said.
The German industry federation, the BDI, was even more pessimistic. "A level of $1.20 is very worrying and we are also concerned that the end is not yet in sight," said its president, Michael Rogowski.
The dollar came under pressure after the US said it was bringing in import quotas on a range of Chinese textile products including knitted fabrics, bras, dressing gowns and robes.
In early trading in the Far East, the dollar hit a record low of 1.1977 though it later recovered to 1.1909 in dealings in London. The downward move was driven by fears that the US administration may be turning towards protectionism in the run up to next year's presidential elections.
The imposition of the new quotas is seen as adding to tensions engendered by existing conflicts including the ongoing spat between the European Union and the US over steel.
"The markets don't want to hear about this right now. Trade, quotas and protection are sensitive issues. The politics (of the US decision) are almost as bad as the economics," said Nick Parsons, currency analyst at Commerzbank in London.
The US is running what it estimates to be a a $120bn trade deficit with China, and officials said the imposition of quotas was designed "as temporary speedbumps" on Chinese exports. The move follows protests from US manufacturers. Mr Parsons said that the dollar had also been hit by US figures on Tuesday showing a sharp fall in portfolio investment - mainly shares and bonds.
The US needs to attract large flows of foreign investment in order to finance its current account deficit.
Tony Norfield, global head of currency strategy at ABN Amro, said that the dollar was likely to stay under pressure. "Despite obviously very good data from the US we have had no real response from the dollar," he said."This along with worries about any other trade quotas the Bush administration may get into leading up to the elections and the evidence of international investors deserting US positions raise the risk of further dollar weakness in the weeks ahead."
Market concerns were reflected in falling share prices among leading exporters from the euro zone. Defence equipment company Eads and car maker Daimler Chrysler saw their shares down by 2% to 3% on the day.
==================================== To this day, no one has come up with a set of rules for originality. There aren't any. [Les Paul]