European Union officials said on Thursday they knew of no contacts with the United States on the weakness of the dollar despite a report that Washington and Brussels are united in their desire to see it strengthen. The report, in the Financial Times, briefly sent the euro to a two month low against the greenback.
Finnish Prime Minister Matti Vanhanen, reacting to the report in the Financial Times newspaper, said in Helsinki he knew of no discussion of a joint EU/US initiative to strengthen the dollar. In Brussels, a source linked to the Eurogroup of European Union finance ministers said: "I am not aware of any high-level contacts taking place."
But Portuguese Finance Minister Fernando Teixeira dos Santos said in London he felt that the US attitude of "benign neglect" of the dollar had changed.
The FT report, which cited officials on both sides of the Atlantic, said they were agreed on the need for the dollar to strengthen against the euro. It said the two sides were concerned to avoid a situation where the dollar fell too fast against the euro and then snapped back. They were also concerned that a dollar slide could reinforce the surge in oil prices, although they did not think its fall had so far been the main factor in the rise in crude prices which on Wednesday reached a record $123.93 a barrel.
The euro has retreated in recent weeks after hitting a record high of $1.6018 on April 22 as poor economic data has started to eat away at a perception of a resilient euro area economy.
It fell nearly half a percent to $1.5287 on Thursday, its lowest since March 11, but recovered after the European Central Bank left rates on hold to $1.5399, slightly higher on the day.
Mitul Kotecha, head of global foreign exchange research at Calyon, said markets had reacted strongly to the report because it suggested US officials were happy with the dollar's recent strengthening. "Until now it seems to be an open door policy for dollar weakness but clearly there are limits," he added. Vanhanen was asked by Reuters whether the United States and the EU were working together to find means to strengthen the dollar.
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