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WEAK DOLLAR REFLECTS CURRENCY CRISIS IN THE EUROPEAN MONETARY SYSTEM, STEIN ROE & FARNHAM CHIEF INVESTMENT STRATEGIST SAYS

 WEAK DOLLAR REFLECTS CURRENCY CRISIS IN THE EUROPEAN MONETARY
 SYSTEM, STEIN ROE & FARNHAM CHIEF INVESTMENT STRATEGIST SAYS
 CHICAGO, Aug. 31 /PRNewswire/ -- Recent sharp declines in the value of the U.S. dollar are the direct results of a currency crisis in the European Monetary System (EMS), according to Stein Roe & Farnham Inc. Executive Vice President and Chief Investment Strategist Alfred F. Kugel.
 Kugel said recent concerns in the United States bond and stock markets about a "run" on the dollar in the world foreign exchange markets are ill-founded, because the dollar's sharp decline actually reflects strains within the EMS, rather than any new-found problems with the U.S. currency.
 "What seems to be happening is a full-blown currency crisis in the EMS that started when the Danish voters rejected the Masstricht Treaty, proposed accords that would create a single European currency and central bank by 1996," Kugel said. "The situation was exacerbated by recent polling which suggests that French voters may also reject the Treaty in a referendum scheduled for Sept. 20," he said.
 "In the meantime, European stock prices have fallen by 16 percent since June 1, while our Standard & Poor's Index is down by only 2-1/2 percent since its recent all-time high. Strains within the EMS have escalated, and several currencies briefly fell below the bottom of the allowed ranges set by the European monetary authorities. European currency traders have been buying German deutschemarks and selling dollars to hedge their own currencies against further declines, not because of any renewed bearishness toward the U.S. unit," Kugel continued.
 "Looking back somewhat further, the U.S. currency has been weak against the deutschemark since last spring, with much of the weakness due to fundamental economic considerations in both countries. Short- term interest rates in Germany have been rising, with the German Central Bank, the Bundesbank, actually raising its rates while the U.S. Federal Reserve has lowered rates in this country. This spread in short-term rates between the two countries widened dramatically during the last two months. Disappointing growth in the U.S. economy this past spring also has sparked dollar selling," Kugel said.
 "At a time when their own economies are crying for lower interest rates, the strong deutschemark is exerting upward pressure on rates, stifling European economic growth and creating uncertainty which has weighed heavily on the European equity markets."
 For the first time in five-and-one-half years, Kugel said, a currency realignment within the EMS is quite possible.
 "What is needed is an upward revaluation of the deutschemark to reduce the tensions," he said, although such a revaluation was not politically acceptable for the French government. "If the French electorate also rejects the Maastricht treaty next month, a currency realignment is likely."
 Despite the current environment in Europe, Kugel said he did not expect the dollar's slide to have a significant impact on the U.S. economy in the near-term. "Over time, higher European currencies will actually make our exports more competitive and increase the exchange value of overseas profits of American multinational companies."
 Stein Roe & Farnham Inc., a subsidiary of Liberty Financial Companies, was founded in 1932 and today has more than $27 billion in assets under management. The firm provides professional investment counsel for individual clients and institutions. The firm also is investment adviser to the SteinRoe family of 16 no-load mutual funds. Stein Roe & Farnham serves clients worldwide from its Chicago headquarters and regional offices in Cleveland, Fort Lauderdale, Fla., Minneapolis, New York, Scottsdale, Ariz. and Puerto Rico.
 -0- 8/31/92
 /CONTACT: Martin Gawne, 312-368-8126, or Julie Crothers, 312-368-8071, both of Stein Roe & Farnham CO: Stein Roe & Farnham Inc. ST: Illinois IN: FIN SU: ECO


SH -- NY060 -- 5057 08/31/92 15:09 EDT
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Publication:PR Newswire
Date:Aug 31, 1992
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