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Euro hits Record High against Dollar

Trade disputes pushed the euro to a record high against the U.S. dollar on Tuesday. Some fear the euro's strength could begin to hurt Germany's stock market and its nascent economic recovery.


The euro's value is riding high, which is bad news for companies like Mercedes.

The head of Germany's main industry association said the euro's new high meant the German companies were already having trouble coping.

"It really hurts," Michael Rogowski, head of the BDI, told reporters after the dollar-euro currency rate closed in on $1.20 Wednesday. "The pain threshold has been passed."

As the euro continues to climb on the back of the latest trade rows, fears are also increasing over the damage it could do to Germany's export-led economy, since a strong currency makes German goods more expensive abroad.

"We are also concerned that the end is not yet in sight," Rogowski told Reuters. "I pray every night, and also sometimes during the day, that the trend will turn around."

U.S. irked over Chinese textiles

American trade disputes over bras with China and steel with Europe sapped the value of the dollar Tuesday, pushing the euro to new heights and causing concern among European businesses.

The currency, used by 12 European countries, rose two cents to $1.1977 against the dollar, breaking the previous record of $1.1933. The ghost of a possible trade war with the European Union over tariffs on steel imports and a brewing disagreement with China on bras and other garments fueled speculation that Washington was becoming more protectionist.

"This raises overseas concerns over just how far the U.S. will go in appeasing various domestic lobby groups," the head of currency strategy at ABN Amro told the Financial Times.

The U.S. Treasury Department, responding to concerns by American congressmen that the U.S. was losing jobs to China, announced on Tuesday it was planning quotas on Chinese textile imports. China answered by cancelling a trade delegation to the U.S.

The spat combined with a World Trade Organization dispute between the European Union and the United States over steel is fueling concerns that Washington was heading down a protectionist route. The EU has threatened to place tariffs on U.S. exports to Europe if the Bush administration doesn't follow the WTO judgement and repeal protectionist tariffs on their steel imports.

Bad news for German stock market, recovery

Listed German companies, already suffering because the strong euro has increased the price of their products abroad, are likely to take a hit on the stock market this week.

"The Euro is flying high, and that's not a good omen for the stock market," a German trader told the Reuters news agency.

That, in turn, could worsen the outlook for Germany's economic recovery. Third-quarter growth of 0.2 percent was heavily reliant on a revived demand for German exports in the United States and other key overseas markets. Should the export sector falter, Europe's largest economy cannot rely on still weak domestic demand to pick up the slack.

Rogowski downplayed those fears, saying he was confident Germany could stick to what analysts expect will be a 1.5 to 2 percent increase in their GDP next year.

"I believe in a turn-around despite the weak dollar," he said.

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