The ECB meets in Paris today against a backdrop of the euro's continuing weakness. Its precarious position was underlined last night by a dramatic fall which saw the currency set a new low against the dollar. It was sparked by initial heavy falls on US stock markets which turned into a buying opportunity for bargain hunters and helped fuel demand for the US currency.
The euro dropped as low as $0.8330 in late afternoon New York trading, as the recovery in US asset markets fed through into renewed confidence among dollar holders and pushed the euro lower. It later recovered marginally to $0.8382.
The euro's previous low was $0.8443 two days before the central banks of the Group of Seven nations intervened to prop it up. In late European trading, the euro was trading at $0.8389 compared to $0.8541 on Tuesday evening in New York.
The euro had earlier moved up against the dollar, trading at $0.8571 when the Nasdaq showed a loss of nearly 6 per cent, but a subsequent rebound in the US stock index sent the European currency tumbling.
Analysts said the market was testing the euro following ECB president Mr Wim Duisenberg's remarks earlier this week which were seen as cutting the chances of another round of intervention.
Mr Duisenberg had told The Times that it would not be appropriate for central banks to intervene to support the euro if a war in the Middle East caused sudden changes.
Today's ECB meeting was meant to be a relaxed affair, with more emphasis on public relations than on policy making. Part of a campaign to bring the Bank closer to European citizens, it is only the second time since its foundation two years ago that the ECB has met outside Frankfurt.
But when Mr Duisenberg, joins his fellow central bankers in the Banque de France this afternoon, he will do so as a diminished figure whose personal future looks increasingly uncertain.
By Tuesday morning, the markets were buzzing with rumours that Mr Duisenberg was about to resign and EU finance ministers meeting in Luxembourg offered only lukewarm support to the beleaguered central banker. The ECB has dismissed talk of resignation as nonsense but Mr Duisenberg is sure to face questions about his future when he meets the press after this afternoon's meeting.
To add to his embarrassment, Mr Duisenberg's host in Paris will be the French central bank governor, Mr Jean-Claude Trichet, the man who is expected to succeed the ECB President some time in 2002.
The sell-off provoked by Mr Duisenberg's latest gaffe highlights the extraordinary scrutiny that greets his every utterance. News agencies, financial journalists and market analysts examine every word for evidence of the future direction of interest rates.
It was fear of a repeat of last month's co-ordinated intervention that halted the decline in the euro's value until this week's collapse.
