Jul 16, 2002 By David Mchugh Associated Press Writer 3 min read

FRANKFURT, Germany (AP) – Amid worries over American stocks, the U.S. dollar fell below parity Monday with the euro for the first time since February 2000. The dollar’s weakness is a mixed blessing for the United States, the world’s biggest economy. It means costlier European vacations and imports for Americans and increases inflationary pressure. But it eases price disadvantages for U.S. manufacturing exporters, who have complained about the strong dollar for months.

The strong euro also relieves inflationary pressure in Europe by making imported goods and energy cheaper.

The decline of U.S. stocks and a series of scandals about the trustworthiness of earnings reports are a major force driving the dollar down, according to economists. That, more than any new conviction about the strength of the economy in the 12 nations that use the euro, has fueled the common currency’s rise. “It’s still a dollar-negative story, not a euro-positive story,” Commerzbank economist Michael Schubert said.

Slumping U.S. indicators – including “lower equity prices and very disappointing numbers for consumer confidence” in a recent U.S. survey – provided the underlying push that finally lifted the euro over the top, Schubert said.

The joint European currency has been hovering near one-to-one with the dollar for weeks. It started trading Monday at 99.3 cents and reached $1.0045 by the afternoon. It has risen 15 percent since beginning its rally in early April.

The euro hit its all-time high shortly after its launch on Jan. 1, 1999, but then began to slide, falling through the $1 mark in February 2000.

and hitting a record low of 82.30 cents in October 2000.

Foreign investors’ eagerness to buy U.S. stocks during the boom of the late 1990s was one of the things that kept the dollar high against foreign currencies, because investors need dollars to purchase U.S. investments.

For years, that was enough to offset the huge U.S. current account deficit, the broadest measure of foreign trade, running at $417 billion last year and showing no sign of abating this year. When Americans buy more from overseas than they can sell, that puts downward pressure on the dollar.

Now with the bad news in the American economy, “investors don’t want to hold that many U.S. dollar denominated assets any more,” said Julian von Landesberger, an economist at HVB bank in Munich.

Touching the parity mark with the dollar is a psychological boost for the euro, which in the past staged several tentative rallies that always fizzled.

The euro’s supporters had hoped it would challenge the dollar as the favored currency of investors and central bankers, and parity could give them a public relations boost.

Economists caution that despite euro’s rally, there is little encouraging economic news from the 12 countries using the shared money. Growth in the euro zone was an anemic 0.2 percent in the second quarter, though most economists predict a pickup in the second half of this year.

But there may be limits to the euro rally because Europe’s economies – led by Germany – depend on exports to lead their way to recovery.

“That will move to the front burner in the months to come, if the euro continues its upward trend,” Deutsche Bank economist Stefan Schneider said. “People will have more doubts about the euro zone recovery.”