G7 to discuss dollar slide as Europe frets

Finance ministers from the Group of Seven richest nations will discuss the dollar's slide when they meet in February, as Europeans become increasingly worried it may hurt economic recovery, a G7 source said Tuesday.

A euro level clearly higher than $1.20 could not be good for Europe's economy, while a level of $1.30 represented a "pain barrier", the source said.

A stronger single currency, which broke the $1.25 barrier for the first time on Monday, can erode the euro zone's competitiveness by making goods produced there more expensive to customers outside the 12-nation region.

But the source said the United States should also not be happy with a sharply weaker dollar which could lead to a flight of capital from the country, depressing stock markets and pushing up long-term interest rates.

G7 finance ministers begin a two-day meeting in Boca Raton, Florida, on February 6, their first since gathering in Dubai last September when they called for flexible exchange rates.

Although their Dubai statement was aimed at Asian countries, it chiefly accelerated the dollar's slide against the euro and other leading free-floating currencies outside Asia.

One euro zone monetary source told Reuters that currencies would be on the agenda at the next G7 meeting and policymakers needed to avoid confusion caused by the Dubai statement.

Europe prefers to coordinate policies with its G7 allies, but the source did not rule out euro zone officials acting alone if euro appreciation threatened to destabilise markets or an economic recovery. The euro fell slightly in reaction to the G7 source's comment but quickly recovered to stand just below this week's record high around $1.2511.

"It's probably just another German moaning which is why the market isn't paying much attention," said Julian Jessop, chief European economist at Standard Chartered in London.

"There is no doubt that some European politicians and central bankers are concerned about the euro's strength, but I doubt the US will care what the Europeans say. The Germans might want to discuss the euro but it is unlikely the Americans will."

The euro's value has risen nearly 20 per cent this year. The German government said on Monday it was relaxed about the level of the euro, adding German exporters were extremely competitive.