Landing Soon.(Brief Article)

It was a foundling mystery. Born in January 1999 as the currency of a newly united Europe, the euro steadily slipped and has remained dismayingly weak. Only in recent months has it started to gain weight, rising nearly 10 percent against the dollar this year to about 94 cents. By last week, when the euro hit a 17-month high, there were a flurry of predictions that the new currency would soon be trading at 1 euro to $1, symbolizing the end of both the strong-dollar era and the recent American dominance of the world economy.

If this were true, it would bring healthy balance back to a planet that has been spinning lopsided because of all the foreign money flowing into the United States. But it's not true. The rise of the euro does not reflect a global vote of confidence in the European economy; it reflects a temporary sentiment of no confidence in United States corporations, due mainly to scandals involving Enron, Andersen, Tyco and a host of others. "We're anti-dollar, not pro-euro," says Michael Hughes, chief investment officer for Baring Asset Management in London.

That's an important distinction. Think of the currency as the share price of a country. Investors like to buy growth stocks like Microsoft because that growth leads to rising share prices. But when growth stocks overshoot and get too expensive, investors switch into defensive stocks--safe, steady plays like utilities. That's what is happening in the stock market right now, and something similar is happening in the currency markets, as investors shift money from dollars into gold, Swiss francs and euros. Don't mistake this shift for a bet on the future dynamism of Europe. "It's a short-term trading position, not a long-term investment strategy," says Eric Lonergan, global economist for Cazenove in London.

It's natural that investors would shy away from the dollar after a boom as wild as the U.S. miracle of the 1990s. When U.S. stocks soared, money poured into Wall Street from overseas, driving up the dollar. Europeans in large numbers began discovering the allure of stocks for the first time. That created a European equity culture that turbocharged the rise of the dollar, since the United States makes up 50 percent of the world equity market. The inflow of money allowed ...