Euro sags despite renewed European intervention

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The Independent Online

Europe's top central bankers intervened in money markets again Monday morning, buying euros to give the ailing currency a needed boost - the third attempt to bolster the euro including two interventions on Friday that failed to boost exchange rates.

Europe's top central bankers intervened in money markets again Monday morning, buying euros to give the ailing currency a needed boost - the third attempt to bolster the euro including two interventions on Friday that failed to boost exchange rates.

The euro immediately shot up above 87 cents to the dollar after languishing around the 86.5 cent level overnight. But as it did on Friday, the euro immediately sank again to hover just below 87 cents.

Economists have said the European Central Bank, which manages monetary policy in the 11 European Union countries using the common currency, might have to stage repeated interventions over the coming days to show currency markets it is serious about defending the euro's value.

ECB spokeswoman Regina Schueller would not say how big Monday's intervention was, but said the ECB acted to stem inflation that can be brought on by a sagging exchange rate.

Like last week, the ECB acted alone without cooperation from the United States or Japan, Schueller said.

But by midmorning there were already signs the Bank of Japan could hop on board.

"We will continue to carefully watch developments in the market and will cooperate if necessary," said Japan's vice finance minister for international affairs Haruhiko Kuroda, speaking in Tokyo.

Economists have criticized the solo shots at intervention, saying that leaving out other central banks pares down the number of euros that can possibly be traded and robs the intervention of extra firepower.

The recent interventions come in marked contrast to the ECB's first intervention, a coordinated strike on September 22 that marshalled the cooperation of the US Federal Reserve, the Bank of Japan and the central banks of England and Canada.

The euro's retreat on Friday was fueled by the afternoon release of US economic figures that showed better-than-expected unemployment figures and an increase in US factory orders, two factors renewing investor confidence in the US economy.

The anemic euro, which has lost a quarter of its value since its January 1999 launch, is becoming a big problem in Europe because it makes imports more expensive. That could eventually spill over into higher price tags at the corner store for the region's 291 million people.

Inflation in the region peaked at a six-year high of 2.8 per cent in September, well above the ECB's target of 2 per cent. And ECB President Wim Duisenberg said last week it will take longer than the expected three to four months for inflation to fall back to the 2 per cent level.

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