ECB buys euros again

Click to follow
The Independent Online

The European Central Bank stepped into the currency markets to buy euros yesterday for the second successive trading day. Its action sent the euro temporarily a cent higher against the dollar before it fell back to its earlier level.

The European Central Bank stepped into the currency markets to buy euros yesterday for the second successive trading day. Its action sent the euro temporarily a cent higher against the dollar before it fell back to its earlier level.

The single currency spiked up to $0.8730 in the wake of the lone action by the ECB. It later hovered at around $0.8614, with currency traders saying the ECB would have to be prepared for repeated intervention.

Romano Prodi, President of the European Commission, contributed to the lacklustre market reaction when he said the single currency would need several more years to establish itself. He told delegates at the Confederation of British Industry's conference in Birmingham that the US Federal Reserve had taken 20 years to "work properly".

"So please let us have two years. We don't think we need 20 years, but we do need two years and we shall deliver on our job," Mr Prodi said.

He said the key date would be January 2002 when euro notes and coins were introduced. "You have not yet got the paper in your hands and you cannot expect a form of money that is still in the first phase of its life to be fully appreciated by people."

The fact that the ECB was again acting on its own without the US Federal Reserve or the Bank of Japan explained why its action had little impact, analysts said. The euro briefly touched $0.8790 on Friday.

Stephen Lewis, chief economist at Monument Derivatives, said: "The ECB reported that other G7 monetary authorities had been informed of the action it intended to take. The clear presumption is that none of them wanted to join in."

Yesterday's move followed two rounds of ECB intervention on Friday and joint G7 intervention on 22 September.

The Bank of Japan signalled cautious support yesterday. Haruhiko Kuroda, Japan's Vice-Finance Minister for International Affairs, said: "We will continue to monitor currency markets carefully and cooperate depending on conditions."

Lawrence Summers, the US Treasury Secretary, has not hidden his lack of enthusiasm for direct action to support the euro. In the final leg of the presidential election campaign he has repeatedly said he wants to see a strong US dollar.

Mr Prodi defended the record of the ECB and its president Wim Duisenberg, despite the mixed success of the interventions and Mr Duisenberg's gaffe last month when he discussed intervention policy.

"The central bank is working well and since the launch of the euro the economy is growing on its fundamentals," he said. "Growth is very good and the rate of exchange will follow the strength of these structures, but the baby is growing up well."

The ECB confirmed only that it had bought euros yesterday, giving no figure for the size of its purchases.

Its attempt to boost the currency was hindered by new figures showing a drop in German industrial orders, the first decline for nine months. New orders in manufacturing industry fell 4.6 per cent in September, far worse than expected. Export orders fell 6.2 per cent during the month despite the boost for exporters from the weak currency.

Economists said the figures confirmed fears that growth in one of the eurozone's core economies was already slowing.

Comments