The euro rose for the second successive day yesterday as traders seized on hints by finance ministers that they had no plans to intervene to curb the currency's rise. The markets continued to test whether the Group of Seven leading nations were prepared to back their weekend statement condemning currency volatility with action.
Analysts were taken by surprise by comments after a meeting of European ministers appeared to rule out any intervention to arrest the slump in the dollar. "Maybe there should be some sort of course that finance ministers can go on," said one.
Didier Reynders, the Belgian finance minister, said there had been no talk of intervening in the foreign exchange markets while Gerrit Zalm, the Netherlands' minister, said the current exchange rate was not causing concern. "The mood was positive and everyone was happy with the [G7] statement because it was in line with the statement by the euro group," Mr Zalm told reporters.
Karl-Heinz Grasser, Austria's finance minister, said the effect of "further euro appreciation on growth would be just minor". "The world recovery is going on. This is the most important [thing]," he said.
The euro hit a one-month high of $1.2788 against the dollar in earlier trading, while the pound soared to an 11-year high of $1.8663.
Rob Carnell, the chief international economist at Commonwealth Bank of Australia, said: "They have undone all the good they achieved [at the G7] with their idiotic prattling about currencies. It beggars belief that they talked about intervention not being on the table when all they had to do was to leave the option open." He said the market was likely to push the euro through $1.30 and test how much pain Europe's leaders would see inflicted on their economies before taking action.
The dollar has fallen 12 per cent against the euro since September when the G7 - Britain, Canada, France, Germany, Italy and Japan and the US - called for "flexibility" in currency markets.
At their meeting in Boca Raton, Florida, the G7 renewed a call for flexibility but specified countries or regions which "lacked such flexibility", and added a warning against excessive currency volatility. The statement was viewed as mixing a demand for Asian countries to let their currencies rise against the dollar with words aimed at discouraging markets from driving the euro any higher.
However, economists said the market had realised the communiqué was a compromise between the US demand for a gradual decline in the dollar and Europe's insistence that others should share the burden.Reuse content