ECB intervention fails to support euro

The European Central Bank was forced to intervene twice in five hours yesterday to prop up the euro after an initial lone foray into the currency markets failed to have a lasting impact.

The European Central Bank was forced to intervene twice in five hours yesterday to prop up the euro after an initial lone foray into the currency markets failed to have a lasting impact.

The ECB took traders by surprise in the morning, wading in to buy euros and driving the currency up as much as 1.5 cents against the US dollar. But it fell back as it emerged that the US Federal Reserve had stayed out of the market.

At one point the euro fell below the level at which it started the day, prompting the ECB to launch a second intervention. By the end of trading in London the euro was just above $0.86, close to its level at the start of the day and off a peak of $0.8787.

Asked to say whether the operations had been a success, an ECB spokesman said: "Not at this stage." Its morning statement read: "The ECB has intervened in the foreign exchange market owing to its concern about the global and domestic repercussions of the exchange rate of the euro, including its impact on price stability."

Although the 11 national banks of the euro area countries joined in the intervention, the ECB confirmed it had not asked the US Federal Reserve, the Bank of England, nor the Bank of Japan to part. Analysts speculated that the reason was that they would have refused. The news encouraged traders to push the euro below $0.86 to test the ECB, which responded by buying more euros.

The single currency was further undermined by a statement from Larry Summers, the US Treasury Secretary, repeating that the US favoured a strong dollar. "We reaffirm our commitment to... our long-standing strong dollar policy," he said. He added: "We share the concern expressed by the ECB in the context of its action today... about the implications of the broad movements in the euro for the world economy."

The intervention received verbal support from Laurent Fabius, the French Finance Minister, and from the European Commission.

Analysts were reluctant to say the euro had turned the corner on the back of yesterday's intervention. Michael Derks, international strategist at Commonwealth Bank of Australia in London, who has a "neutral" stance on the currency, was not impressed. "Unilateral intervention is not the answer for the ECB and from this point forward the foreign exchange markets will demand combined intervention," he said.

Kit Juckes at Royal Bank of Scotland said it would be difficult to change market sentiment while so many analysts still bought into the US productivity miracle.

The strength of the US economy was underlined by figures yesterday showing that employment and wages both rose last month. The unemployment rate held steady at a 30-year low of 3.9 per cent. The economy generated an extra 137,000 jobs, lower than the forecast 184,000. Average hourly earnings rose by 0.4 per cent, more than expected. This fuelled concern that the Federal Reserve will have to raise interest rates again, further boosting the dollar.