European Central Bank intervenes to buy euros

Click to follow
The Independent Online

The European Central Bank said this morning it had intervened in currency markets to buy euros in a move to boost the ailing currency. It is only the second time the central bank has acted on behalf of the euro.

The European Central Bank said this morning it had intervened in currency markets to buy euros in a move to boost the ailing currency. It is only the second time the central bank has acted on behalf of the euro.

The ECB, which decides monetary policy in the 11 nations using Europe's common currency, last intervened on September 22, coordinating with the U.S. Federal Reserve and the Bank of Japan to boost the beleaguered currency.

The euro immediately rallied on news of Friday's intervention, skyrocketing above 87 cents to the dollar after languishing around 86.5 cents throughout much of the day.

The British Treasury and the Bank of England, which also participated in September's coordinated strike to boost the euro, offered no comment on whether they were taking part in the current action.

The prospect of intervention has surfaced in recent days as economists and money traders speculated that such a move would give an extra boost to the euro's recent comeback after bottoming out last week at an all-time low below 83 cents.

When the ECB shows itself willing to intervene in currency markets and buy euros, money traders are less willing to sell euros for fear of being caught empty-handed if a big buyer for the currency suddenly emerges.

The euro caught an updraft late last week when the United States reported its economic growth fell to 2.7 percent in the third quarter, less than half the pace of the sizzling 5.6 percent posted the quarter before.

When asked Thursday at a regular ECB meeting whether the euro's recent rise was due to a covert intervention by the ECB, Duisenberg refused direct comment. But he tacitly acknowledged the ECB had stayed out of markets when he said any interventions would be announced after the fact. There was no such announcement Thursday.

The threat of intervention was raised earlier this week by Ernst Welteke, president of Germany's central bank and a member of the ECB's governing board, who said in a magazine interview that the euro's guardians were prepared to intervene again when necessary to boost the euro.

U.S. Treasury Secretary Lawrence Summers spurred further speculation when he said Tuesday there was "a role for intervention."

In September, when the euro first tumbled through the 85 cent level, the ECB and other allies, including the U.S. Federal Reserve and the Bank of Japan, launched a synchronized strike to buy euros.

Some economists had speculated an intervention was in the works, but later in the month.

Bernhard Pfaff said earlier in the week that if the ECB intervened again, it would make better sense to do it later this month after seeing whether the appreciation is a real trend.

Intervening then would have also open the door for the U.S. Federal Reserve to join in, something seen as critical for the credibility and scale of such a move. The ECB's trans-Atlantic counterpart is seen as a reluctant partner now for fear of upsetting markets before Tuesday's U.S. presidential election.

Comments