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Analysts of euro weakness look to the east

As the dollar continued to weaken in the days after the attacks on the World Trade Centre, the euro inched up to 91 US cents, with some analysts predicting 98 cents or even parity. It has been a painful crawl back for a currency that required concerted central bank support a year ago.


       
Sinn (right) and ECB president
Duisenberg: "look east, old man"

Although only a few observers suggested before the euro's launch that it would fall below $1, a broad consensus has since developed to explain why this happened. It was largely caused, the reasoning goes, by massive net exports of capital from Europe to the US as FDI and portfolio flows.


But according to an increasing number of researchers and traders, the relatively small and shadowy market for physical currency outside the eurozone may be equally - or more - to blame.



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