Euros surges on rollout

January 2, 2002 Posted: 1103 GMT

LONDON (CNN) -- The euro soared against the dollar, pound and yen as 300 million Europeans from Finland to Greece started using the single currency.

"The euro has gone up on increasing confidence levels," Jane Foley, currency strategist at Barclays Capital, told CNN. "Theoretically the introduction should make no difference (to the euro)."

Until now the single currency, which made its debut on January 1, 1999, had only been used by the financial markets. Since its introduction the single currency has lost about a quarter of its value against the dollar.

On January 1, 2002, the euro became legal tender in Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

In early London trading, the euro hit 90 cents, up 1.2 percent, against the dollar, with the single currency up 1.4 percent at 62 pence against the British pound and hit its highest level against the yen since September 1999 above 118.30.

But the euros introduction has raised concerns about inflationary pressures as businesses take the opportunity to round up prices, analysts said.

"The European Central Bank has not been very aggressive in cutting interest rates. The reason being inflation," Foley said. "Consumer prices have been above their self imposed 2 percent ceiling for some time"

"With the new currency causing prices to rise the ECB may be reluctant to cut rates."

Economists expect the ECB, which has cut interest rates four times this year to 3.25 percent, to trim rates by the end of March. The U.S. Federal Reserve has cut interest rates 11 times this year to 1.75 and the Bank of England has trimmed rates seven times to their lowest in early 40 years.

Growth in the 12 nations that form the eurozone is expected to grow between 0.7 and 1.7 percent in 2002, compared with the ECB's previous forecast range of 2.1 and 3.1 percent.