NEW YORK, July 12: The dollar rallied on Friday as the euro was dragged lower after German Chancellor Gerhard Schroeder appeared to call on the European Central Bank to curb the strength of the European currency.

The euro slipped fell to 1.1295 dollars at 2100 GMT from 1.1377 late on Thursday in New York. The dollar strengthened to 117.79 yen against 117.64 on Thursday. The euro eased back after Schroeder said in an interview with the Financial Times: “I assume the intelligent people in the leadership of the ECB discuss the question every day of whether they have done enough in the context of the dollar/euro exchange rate to maintain the competitiveness of exports from Europe.”

The current strength of the euro was partly responsible for the sluggishness of the German economy as it is hitting the country’s exporters, Schroeder added.

“These comments were interpreted by some as an implicit call for ECB action to stem euro strength, prompting the currency to fall against the other majors after the release of the report overnight,” said UBS Warburg strategist Shahab Jalinoos.

But in what was taken by some as a rejection of Schroeder’s call, the ECB’s chief economist, Otmar Issing, told reporters the competitiveness of the German economy “does not just depend on the exchange rate”.

WestLB strategists said Schroeder’s remarks “may mark a turning point in the way politicians respond to the euro strength, and therefore may influence the medium to longer term euro sentiment.”

The yen meanwhile lost ground on the threat of intervention by Japanese authorities to support the dollar and on a sharp fall in Tokyo stock prices.

“Intervention fears are increasing,” said Kazuhiro Nishina, assistant manager of the foreign exchange division at Aozora Bank in Tokyo. “The majority of market participants still expect the Japanese authorities to step into the market to weaken the yen.”

The dollar was being quoted in late US trade at 1.3746 Swiss francs from 1.3601 a day earlier. The pound was at 1.6305 dollars after 1.6344 on Thursday.—AFP