The euro has fallen to six-month lows against the dollar and sterling after European Central Bank (ECB) president Mr Wim Duisenberg ruled out intervention to support the currency.
"The exchange rate of the euro is not a target for us," Mr Duisenberg said at a press briefing in Vienna. "It is only important if it would no longer support our inflation aim. That is not the case."
The currency immediately plummeted to $0.8468, from $0.8578 yesterday, its lowest since November 27th but still above a record low of $0.8230, which was set in October.
The euro also sank against the yen and sterling, trading around 100.55 yen and 59.66p against sterling from 60.27p a day earlier.
Traders warned the comments could provoke them to re-test the lows of last October. According to Mr Jim Power, investment director at Friends First, it "simply proves that Mr Duisenberg is inept as a communicator. When the currency is under pressure, central bankers simply should not say that sort of thing".
AIB economist Mr Oliver Mangan pointed out the markets simply cannot trust that the ECB will not intervene simply because of these comments. He pointed to the surprise interest rate cut of a few weeks ago, which Mr Duisenberg had ruled out only days earlier.
"Believing indications from the ECB may simply lead you up the garden path," he said.
The ECB last intervened on its own in November at levels between $0.85 and $0.87. The first co-ordinated round of buying by major central banks last September started at around $0.8750. On both occasions, the currency was rising from earlier lows.
The euro began losing ground after a report showed the number of jobless workers in France, the euro zone's second largest economy, unexpectedly rose.
