The European Central Bank has again attempted to prop up the euro through intervention on the foreign exchange markets.
Following its unilateral intervention on Friday, the ECB went into the market to buy euros - again without the support of the major international central banks.
The currency initially rebounded but soon fell back to its pre-intervention levels of around $0.8611, falling in late trading below $0.86.
According to Mr Austin Hughes, chief economist at Irish Intercontinental Bank, the ECB president, Mr Wim Duisenberg, may be engaged in a holding operation ahead of the US presidential election today. The fear is that, without intervention, a Bush victory could be positive for the dollar and send the euro down again.
Other analysts warned that the ECB could be playing a dangerous game fighting against longterm trade and investment flows. According to Mr Tony Norfield, head of global foreign exchange research at ABN Amro: "It is truly a dangerous game as they are fighting against long-term flows that are still euro negative and such flows generally will not respond to intervention raids."
Other analysts said the effect of intervention was that the euro would find it difficult to fall below $0.86 in the short term; on the other hand, it was unlikely to bolster the currency.
"No one is really in intervention mode or overly worried about being short. It is business as usual and the natural order flow is to sell euros right now," said Mr Patrick Brodie, of Sumitomo Bank in New York.
Officials continued to try to support the euro in their comments. ECB governing council member and Bank of Finland governor Matti Vanhala said the ECB was happy with the outcome of its interventions yesterday and Friday. European Commission president Mr Romano Prodi called the intervention a "well-calculated risk".
European Central Bank vice-president, Mr Christian Noyer, said the exchange rate was "unsatisfactory". He said growth now looked "pretty similar" in the US and Europe. Noting that the outflows of investment from Europe to the US were to blame, he said: "The heaviest of this movement is behind us and the flows are more balanced now."
Mr Hughes said the amount the ECB was spending was quite limited. It is thought the bank spent about $1 billion (€1.2 billion) on Friday, compared with up to $5 billion in total on September 22nd when it was joined by the Federal Reserve, the Bank of England and the Bank of Japan among others.
Economic data from the euro zone failed to support the move to intervene, with Mr Stephan Monissen, of Schroder Salomon Smith Barney, saying releases surprised significantly on the downside.
