The euro has fallen to yet another low despite weakness in US high-technology equity markets. The beleaguered currency hit $0.8488 in late Asian trading before rising in European and US trading hours as traders waited to see if central bank intervention would be ordered.
But it is still under downward pressure as capital flows continue to benefit the US.
Mr Aziz McMahon, economist at Ulster Bank Markets, said the outflow of capital from Europe to the US, lured by the greater growth there, completely dwarfed the amount the ECB spent on quasi-intervention last week.
The ECB spent €2.5 billion (£1.96 billion) in what the market took to be intervention although the bank insisted it was just a technical adjustment. There was an outflow last year of €190 billion from Europe to the US, however, with only €50 billion the other way. According to Mr McMahon, the ECB will have to work harder to convince the markets there really is a mis-alignment of currencies. That is made harder by statements from some leading politicians such as Germany's Mr Gerhard Schroder.
There is still speculation that the ECB could start buying euros on a large scale. The market is looking ahead to the meeting on Saturday of finance ministers and central bankers from the Group of Seven industrialised nations, which will give the countries an opportunity to formulate a plan to bolster the euro.
Expectations that G-7 policymakers would not try to lift the currency before the meeting in Prague may have accelerated the euro's fall, analysts said. Japanese finance minister Mr Kiichi Miyazawa said yesterday that Japan would co-operate "flexibly" with its G-7 counterparts to stabilise the currency. Analysts believe, however, that the US is unlikely to co-operate.
ECB council member and Bundesbank president Mr Ernst Welteke agrees. "Given it's an election year in the US, it would probably be difficult to get a clear statement" on currency intervention, Mr Welteke said yesterday.
He called on euro-zone governments yesterday to make a greater effort at co-ordinating their economic and financial policies, saying this would benefit the euro's external exchange rate.
But he played down the significance of the euro's persistent fall on foreign exchange markets, saying the deutschmark had experienced similar fluctuations against the dollar in the mid-1980s without causing anyone to describe the German currency as a failure.
It is now difficult, however, to find a market analyst who does not predict that the euro can sink as low as 80 cents, particularly if the German Ifo business confidence survey weakens again, when it is released today.
The likelihood of a No vote in the Danish referendum on entry to the euro zone has been factored in to the currency. But should the polls prove wrong and the Danes vote Yes, the currency may receive a little bounce.
Even an IMF report out yesterday, which estimated that European growth would exceed US growth next year, failed to dent the dollar. The IMF sees the euro zone growing by 3.4 per cent next year and the US by 3.2 per cent.
