The euro hung insecurely above its all-time low last night despite a well rounded defence of the currency by ECB president Mr Wim Duisenberg. The currency initially recovered slightly as Mr Duisenberg claimed he was doing a good job but sank back as new figures showed that Germany's businesses are losing confidence in economic recovery.
The euro was trading at $0.8415 yesterday evening having dipped briefly to $0.8399 from a close on Wednesday of $0.8393.
In a press conference in Paris yesterday Mr Duisenberg claimed he is doing a good job as president of the European Central Bank despite a verbal gaffe this week that drove the euro to a record low against the dollar. And he warned the financial markets that central banks remained prepared to intervene in support of the European currency, which he described as "seriously undervalued".
Speaking in Paris after a meeting of the ECB's governing council, Mr Duisenberg came close to apologising for an interview with the London Times this week in which he indicated that central banks would not support the euro if a war in the Middle East caused it to fall.
"I do realise that some of my recent remarks gave rise to critical comment and certainly gave rise to a lot of advice which I have received. I draw my conclusions and accept that advice so I am not going to answer any questions about that interview," he said.
Lukewarm expressions of support for the ECB president from some EU finance ministers provoked speculation earlier this week that Mr Duisenberg was on the point of resigning. One leading investment bank has claimed that representatives of a number of EU governments urged them to attempt to put pressure on the 65-year-old Dutchman to step down.
But the governor of the Banque de France, Mr Jean-Claude Trichet, said yesterday that the ECB's governing council stood four square behind Mr Duisenberg.
"The team is profoundly and unanimously united behind its president," he said.
Mr Duisenberg dismissed calls for his resignation and said that he should be judged on his success in fulfilling the ECB's primary objective - the maintenance of price stability in the euro zone.
Asked if he thought he was doing a good job, Mr Duisenberg replied: "the answer is yes."
Looking back over the first 21 months of the euro's life, the ECB president painted a glowing picture of the state of the economy in the euro zone.
But soon after he spoke, Germany's Ifo institute offered a slightly different reading of the situation, producing data that showed west German business confidence falling in September.
Mr Duisenberg dismissed this as a temporary blip, and predicted that economic growth would remain robust "this year, next year and probably the year after".
Departing from his usual practice of scolding EU politicians for failing to reform their economies, he praised the progress they have made in balancing budgets, increasing competition and liberalising labour markets. He acknowledged that the weakness of the euro represented a threat to price stability but he warned the markets that the ECB would not allow the currency to fall much further.
"We strongly believe that the euro is seriously undervalued. There is a misalignment in the currency markets. There will come a moment when they will be corrected. The instruments we have available remain the same. Intervention remains a tool in our toolbox," he said.
