Now that it is a real rather than a virtual currency, will the euro be able to stand tall alongside the "unsinkable" dollar in 2002, given that it has suffered the humiliation of a triple bottom against the dollar since its 1999 launch? Many economists in the United States are betting that it will, some even predicting a steady climb towards parity with the dollar over the coming months.
The new European currency started well after the relatively smooth introduction of bank notes and coins in the 12 member-states yesterday, the first trading day of the new year, helped by a slight upturn in euro-zone purchasing managers' data for December.
It soared 1.7 per cent against the dollar shortly after markets opened in the US, trading at 90.42 US cents after closing at 88.90 US cents in New York on Tuesday, before settling back to around 90 US cents.
Mr Pedro Solbes, the European Monetary Affairs Commissioner, attributed the rise in the euro yesterday to the success of the launch. "I think any element of suppressing uncertainty is positive for the future," he said.
"The long-term downtrend of the euro is over. It will now be in an uptrend, the question is how steep an uptrend," said Mr Robin Griffiths, chief technical analyst of HSBC Securities in New York, who predicted that the euro, which sank to 82 US cents against the dollar in October 2000, would reach parity with the greenback but would stabilise around 96 US cents later in the year.
"The euro might in fact overshoot parity but if it does so it will fall back again," Mr Griffiths said. "It will only go past parity because market moves often get overdone. But I do think it's going to rise. The pattern on the chart is of rising highs and lows of daily numbers. The short-term moving average has cut upwards through the long, making what technical analysts call a 'golden cross', ie, a clear buying signal.
"What the chart is saying is that it can withstand a few initial hiccoughs. I don't think it's going to be super spectacularly successful, rocketing up to become the one currency everybody's got to own, as the German economy can't stand that yet. The German economy doesn't want the euro to be too strong." The strengthening euro could also help the European markets, he said. "It's like a double whammy. Up to now, you were likely to lose money in the currency if you bought European stock markets, so why do that? Now you might even make a bit in the currency."
US companies conducting international transactions have generally welcomed the euro as they have fewer currency difficulties, but most have already been doing business in the new currency for two years. For US investors the bigger question is whether the euro, now that it has taken tangible form, will challenge the dollar as the alternative currency of choice around the world.
The US Treasury wants to maintain the dollar as a haven against world turmoil. As the Wall Street Journal pointed out yesterday, the US economy benefits hugely from people outside the US holding dollars.
Mr Larry Kantor, global head of foreign exchange strategy at JP Morgan, believes the euro will climb against the dollar, but will fall back to 90-95 cents by the end of the year. "It's a combination of a slower pace of Fed easing and disappointing US economic prospects, not a story about European economic outperformance," he said, adding that the US economy would make a modest recovery and draw in new equity flows.
The predictions of analysts about euro-dollar fluctuations in the past year have not proved totally reliable however. Most had forecast a weaker dollar as the US economy floundered and the Federal Reserve began to cut interest rates, but the dollar ended the year stronger than it began.
It remained the international currency of choice, said Ms Anne Parker Mills, a currency economist with Brown Brothers Harriman in New York, because bad news for the US economy was "worse news for somebody else".
Fed chairman Mr Alan Greenspan said recently that while the euro was a sound currency, the dollar would remain a more attractive international currency because investors believed that productivity growth in the US would continue to exceed that of the euro zone.
