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Section:

Dollar vs. Euro Strength Is No Longer
a Big Concern, European G7 Source Says

From Reuters
Thursday, February 3, 2005

http://www.reuters.co.za/locales/c_newsArticle.jsp;:42025636:edb5271d
cc2e9e55?type=businessNews&localeKey=en_ZA&storyID=7529414

LONDON -- The strength of the euro against the dollar has become
less of a concern and is not considered recessionary for the euro-
zone economy, a European G7 source said ahead of a meeting of the
Group of Seven rich nations.

"The exchange rate is no longer the cause for concern that it was a
few months ago," the source said. "It's not considered a
recessionary factor."

The dollar has steadied around $1.30 per euro since touching a
record low of $1.3667 in December. Still, the euro zone believes the
U.S. Federal Reserve should tighten monetary policy faster if the
dollar resumes its slide, the source said.

"If the dollar weakens again, then the Fed should react by raising
rates more quickly," the source said.

Finance ministers and central bank governors from the G7 industrial
powers meet in London on Friday and Saturday amid concern at global
economic imbalances, though they are not expected to forge a new
position on currency management.

The group has signalled it will repeat its call for flexible
exchange rates, a stance aimed at convincing China to share the
burden of dollar weakness by allowing its pegged yuan currency to
rise. China has given little sign of an imminent shift.

The G7 source confirmed comments made by Italian Economy Minister
Domenico Siniscalco on Wednesday that at previous summits the group
had discussed with China the idea of pegging the yuan to a basket of
world currencies rather than the dollar.

Asked if China seemed to favour this option for revaluation rather
than widening the yuan's fluctuation band against the dollar or
moving the central rate, he replied: "I couldn't speak for them on
that, but they talk about a basket of currencies."

A major factor behind the dollar's slide late last year was investor
concern over the ballooning U.S. current account and budget
deficits, which many analysts see as a threat to overall economic
stability.

The G7 source said the euro zone was eagerly waiting "to see if the
commitment (by U.S. President George W. Bush) to halve the current
account deficit in the next five years is backed up by policies."

The source also said oil prices would again be on the G7's agenda,
though they are "less of a concern than six months ago." U.S. light
crude futures have traded around $47 at the start of February, after
peaking above $55 in late October.

He also cited "recent studies that suggest current prices are in
line with oil resources and are sustainable."

The G7 will not discuss Argentina's controversial offer to exchange
debt in default with new debt at a loss of up to 70 percent, which
many investors around the world have snubbed in a drive to hold out
for a better deal.

"It would be inappropriate for the G7 to say anything which could be
seen as interference while the offer is still open on the markets,"
the source said.

The G7 comprises the United States, Britain, France, Germany, Italy,
Canada, and Japan.

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