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"People are still very worried about longer term solvency issues for euro," said David Gilmore of Foreign Exchange Analytics in Essex, Conn. In an interview published Friday, European Central Bank President Jean-Claude Trichet dismissed suggestions that the bank's decision to buy government bonds of indebted countries might stoke inflation. Higher inflation decreases the value of a currency. It can also prompt central banks to raise rates. "The euro is in a no-win situation at this point," wrote currency strategists from Brown Brothers Harriman in a research note. Future growth in Europe could be constrained if investors feel shaky about the banking sector's stability and willingness to lend, said Robert Sinche, chief strategist at Lily Pond Capital Management LLC in New York. That could spread beyond the continent. "The disintegration of the European currency could be very shaky for markets globally," said Brian Kim, senior foreign exchange strategist for UBS AG. But for many trackers of currency markets, that's not a realistic concern. The European monetary union itself is not at risk, said Michael Woolfolk of Bank of New York Mellon.
"Talk of the implosion of the eurozone itself is, I think, overblown," he said. Even if heavily indebted countries such as Greece or Portugal left the 16-nation union, the common currency's union would end up stronger, he said. U.S. Treasury Secretary Timothy Geithner rejected a suggestion made by former Federal Reserve Chairman Paul Volcker in speech on Thursday that the world could be facing "the great problem of the possible disintegration of the euro." Asked about that comment, Geithner said Friday that he disagreed with Volcker. "I think Europe has the capacity to manage through this," he said in an interview broadcast by Bloomberg Television. The euro has tumbled more than 15 percent against the dollar since the year began. Other European currencies slid as well. The British pound fell to $1.4560 from $1.4643 late Thursday. The dollar rose to 1.1308 Swiss francs from 1.1147 francs. The dollar was higher across the board against emerging-market currencies in Latin America and Asia where investors sought safety in the U.S. currency. It also gained against the Nordic currencies and the Canadian, New Zealand and Australian dollars. The dollar fell to 92.21 Japanese yen from 92.84 yen. The low-yielding yen is also considered a safe-haven purchase.
[Associated
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