Nov 9, 2004 By David Rising Associated Press Writer 4 min read

BERLIN (AP) – The euro surged to an all time high of $1.2987 Monday, putting pressure on Europe’s largely export-driven economic recovery and prompting European Central Bank President Jean-Claude Trichet to call the rise “brutal” in an attempt to stem the tide. The 12-nation currency broke its previous record of $1.2962, set Friday, riding higher on concerns over oil prices and the U.S. trade and budget deficits.

“The recent moves, which tend to be brutal on the exchange markets between the euro and the U.S dollar, are not welcome from the standpoint of the ECB,” Trichet said after a meeting in Basel, Switzerland.

Trichet also used the word “brutal” in a temporarily successful attempt to slow the euro’s rise in January.

After the new high Monday morning, the euro dropped to $1.2907 following Trichet’s remarks, then climbed back to $1.2955 later in the session.

The euro, launched in 1999, slumped to less than a dollar for about 2 1/2 years between 2000 and mid-2002. It’s now 57 percent above its all-time low against the dollar of 82 cents from October 2000.

French Finance Minister Nicholas Sarkozy urged the American government to take action. Speaking in Rome after meeting with the Italian industry minister, Sarkozy said the United States should remember a February statement it signed in Florida with the six other G-7 countries that warned excess exchange rate volatility could hurt economic growth.

“The U.S. must cut its budget deficit: This is an unanimous message from Europe and the International Monetary Fund which we’re sending to our American friends,” the financial wire Radiocor quoted Sarkozy as saying.

The euro’s strength harms European exporters by making their goods less competitive on price in the United States – and could threaten the euro zone’s moderate economic recovery, which has been propped up by exports while consumers at home remain reluctant to spend.

The dollar’s slide, meanwhile, helps U.S. exporters because their products become cheaper for foreigners.

People who work for American companies overseas and earn dollars have been hit hard by the rise in the euro. It also raises costs for Americans on vacation in Europe and burdens businesses that rely on tourism, such as hotels and restaurants.

On the other hand, the high euro has helped insulate European businesses and consumers against the recent rise in world oil prices, since oil is priced in dollars.

Martin Huefner, chief economist for Munich’s HypoVereinsbank, welcomed Trichet’s statement, saying “this is the kind of thing we should do” to help keep the euro in check.

He said Trichet’s comments, however, were directed more at addressing the speed of the euro’s recent spike than the current level.

“He is saying we don’t like that kind of momentum,” Huefner said. “I would interpret it that if this level is going to continue, around $1.30, then the economy can live with that. But if the pace of revaluation is going to continue, that would mean $1.40 by the end of the year and that is absolutely intolerable.”

Because Trichet recognizes that danger, Huefner said he sees the ECB doing everything it can to make sure the euro does not hit the $1.40 mark before the end of next year.

Huefner said he believed the ECB would limit its attempts to control the speed of the rally to mere verbal intervention, instead of actively intervening by selling currency reserves. “This is nothing the Europeans are considering,” he said.

Economists say sentiment has turned so strongly against the dollar that positive news about the U.S. economy – such as strong labor market figures Friday – has little impact on its slide.

One factor is the re-election of President George W. Bush and the prospect of his policies continuing for another four years. Bush’s administration has run up the deficit, which weighs on the dollar. Additionally, many analysts believe the White House, although Bush hasn’t said so explicitly, has been happy to see a weaker dollar, since it helps U.S. exporters and helps save jobs and growth.

Michael Schubert, an economist at Commerzbank in Frankfurt, said he expected the euro to rise “at least 1 or 2 cents” more.

“It’s kind of a herd instinct,” based on negative sentiment generated in recent weeks as oil prices hit new highs, Schubert said.

AP-ES-11-08-04 1434EST