The euro fell sharply against the dollar after European Central Bank President Jean-Claude Trichet said that the bank is concerned about "excessive exchange rate volatility" which he said is "undesirable for economic growth."
The strong euro is bad for European exports and discourages US tourists from visiting, but Frankfurt based trader Dirk Mueller said it does have advantages: "We will certainly have difficulties, but on the other hand you have to be aware that we have an extremely high oil price - which would present us with a range of problems if we didn't have the weak dollar, which buffers the oil price and thereby ensures that inflation doesn't rise as dramatically - as it would do if the dollar were strong. So from this perspective, we can actually be happy about the weak dollar and the strong euro."
The price of oil continues to hit record highs: in the US it topped $108 a barrel on Monday, with Brent above $104.
That is because investors are putting their money into oil as a hedge against inflation and the depressed dollar. A rush by financial funds into commodities and political tensions are the prime drivers of the latest rally.
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