November 14, 2002	Thursday	Ramazan 8, 1423

LONDON, Nov 13: The euro edged lower on Wednesday after the European Commission said it was to launch an “excessive deficit procedure” against Germany and issued France with an “early warning” over its deficit.

The single European currency fell to $1.0073 from 1.0126 late on Tuesday in New York.

The dollar also rose to 120.06 yen from 119.64 on Tuesday.

The European Commission’s move was prompted by its own forecasts that Germany was set to breach budget rules this year and next, with a public deficit at 3.8 per cent of gross domestic product in 2002 and 3.1 per cent in 2003.

Under the EU’s Stability and Growth Pact, countries with public deficits approaching a limit of 3.0 per cent face an early warning procedure, while countries surpassing it face an excessive deficit procedure.

The market wasn’t expecting anything less really, said Commerzbank economist Kamal Sharma

The crucial point now is whether the European Commission will take any further action and fine those countries breaching the terms of the Stability and Growth Pact, Sharma added.

The commission also forecast growth of gross domestic product (GDP) in the 12-nation euro zone would be 0.8 per cent this year, rising to 1.8 per cent next year.

Analysts said dealers’ attention was also focused on the United States where Federal Reserve chairman Alan Greenspan was due to testify to Congress later Wednesday.

The expectation has got to be that Greenspan is upbeat about the economy, and downplays the risk of deflation, said ABN Amro currency strategist Rob Hayward.

Both have said that the strong euro and weak growth are dampening inflation, and the expected rapid recovery will not materlialise, WestLB economist Michael Klawitter said.

Klawitter said expectations of an aggressive ECB rate cut were likely to boost the euro in the coming days, since such a move could help to underpin the euro zone economy.

But Hayward believes with such expectations having already been largely priced in, the euro has limited upside potential.

He said 1.0230 dollars was a key level for the euro.

If we do break above there we could see it (the euro) up to about 1.0500 (dollars). But we’re tending to think 1.0230 will provide a cap for now, Hayward said.

Meanwhile the yen was steady following the earlier release of Japanese third-quarter GDP figures.

Japan’s GDP rose 0.7 per cent in the three months to September from the previous quarter.

The figures were quite good but the fear is what happens next. Even the Prime Minister (Junichiro Koizumi) seems to suggest that the fourth quarter is probably going to be negative, Hayward said.

Koizumi reportedly said earlier Wednesday that weakening stock prices meant the recovery of the world’s second biggest economy was in danger of stalling.

The euro was changing hands at $1.0073 from 1.0126 late on Tuesday in New York, 120.94 yen (121.17), 0.6342 pounds (0.6367) and 1.4627 Swiss francs (1.4624).

The dollar was being quoted at 120.06 yen (119.64) and 1.4523 Swiss francs (1.4431).

The pound was at 1.5881 dollars (1.5895), 190.68 yen (190.21) and 2.3070 Swiss francs (2.2945).

On the London Bullion Market, the price of an ounce of gold firmed to $324.05 from 321.74 late on Tuesday. —AFP