In a floating exchange environment, market determines the rate of exchange. As an international reserve, the euro is used as an alternative asset to the dollar. After a major fall in the 1999-2000 period and its trough at the end of 2000, the effective exchange rate of the euro has now been appreciated almost by 30%. There is a possibility that the euro may even eat into some of the dollar's share in the global economy. But as long as US remains a safe haven and its productivity growth outperforms Europe, dollar will continue to be the king of the currencies. The falling of the dollar against euro is a reflection of a weaker US economy. But, if you think positively, it might be even a blessing. As per the US' current account deficit, the weaker dollar will make exports cheaper for buyers who are having other currencies. It also provide investors an option to put their money and provide policymakers less room to set economic policy.

Until now, the European Commercial Bank (ECB) has indeed reacted by providing some monetary stimulus in the form of interest rate- cuts. But these have not been decisively strong to counter the negative impact on growth coming from the strong euro.The single currency of 12 nations of Europe the eurois rising against the US dollar precipitously reflecting a high degree of faith in the euro, which is hardly a five-year old currency. Just two years ago, one euro was around 78 cents but now at the beginning of 2004, it rose to $1.27 from the levels of $1.14 in October 2003. The euro has surged 20% over the last year. The euro, which has emerged as the world's second biggest currency after the dollar, is now 50% higher than its low against the dollar less than two years ago.