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Euro holds head up as markets head into Y2K

NEW YORK: Europe's single currency eked out modest gains on Thursday, but with just one more trading day left in 1999, the euro seemed poised to end its debut year with a whimper.

In late New York trading, last-minute position-squaring had helped rescue the euro after it keeled toward its lows earlier in the session, dealers said.

"We pulled the rubberband a little bit and it's just snapping back," said Ben Strauss, vice president at Bank Julius Baer.

The euro finished Thursday trading at $1.0080, up nearly 0.4 percent from $1.0043 at Wednesday's close.

But with skeleton staffing on many bank trading desks ahead of the New Year weekend creating extremely thin trading conditions, the euro was unable to gain much momentum, dealers said.

Europe's fledgling currency was left dangling less than a cent away from its lifetime lows against the dollar below $1.00 and about one yen above its all-time trough versus the Japanese yen near 102 yen.

Traders said they anticipated even less action in the currency markets on Friday, when stock and bond markets will close early).

The euro's year-end weakness only accentuated a sobering first year in which it slumped 14 percent against the dollar, 22 percent against the yen and around 12 percent against the pound.

"The euro is sitting where it was two weeks ago, which is probably a disappointing result given the continued strong cyclical data out of the region," McCormick said.

The euro's first year was initially marred by Europe's slow economic recovery and later by concerns over structural problems in the region's economy.

The dollar, meanwhile has outperformed the euro, as the US economy continues to post astonishing growth rates and America's seemingly unstoppable stock markets cruise to record highs as the millennium wanes.

The dollar's strength against European currencies was reflected as it very briefly rose above 1.60 Swiss francs, touching a 10-year high against the Swiss currency at 1.6010 before retreating to end the day softer.

Overnight, the market had already begun to shrug off economic data and verbal intervention by monetary authorities.

The euro barely moved after European Central Bank board member Tommaso Padoa-Schioppa reiterated that the euro was underestimated, echoing his comments and similar comments from other ECB and Bundesbank officials made on Wednesday.

It also ignored a fall in the French unemployment rate to 10.8 percent in November from 11.0 percent in October and Italian November producer prices, up 2.2 percent year-on-year -- the steepest rise since April 1996.

Against the yen, the dollar edged modestly higher to finish at 102.37, up 0.2 percent from 102.15 on Wednesday. Fears the Bank of Japan may intervene to curb export-crippling yen strength, as it did last week, have capped the robust yen from rising further.

In a bid to allay fear of any Y2K funding squeeze, the Bank of Japan left a staggering 22.6 trillion yen net surplus in the money market -- more than 20 times the already accommodative one-trillion-yen surplus it had been leaving in the market for months until last week to keep overnight call rates near zero.

But yen was unfazed by the extra fund injection as the move was seen as a temporary, technical Y2K measure and not a sign of further easing in the central bank's monetary policy. -Reuters