The euro has made small gains ahead of a meeting of the European Central Bank's general council today as rumours of impending intervention circulated in the market.
The ECB is expected to keep interest rates on hold but the talk of intervention helped the euro close last night at $0.8647 from $0.8598 on Tuesday and at 61.24p against sterling from 61.31p.
Mr Aziz McMahon, economist at Ulster Bank, said a flurry of talk about intervention had driven the currency higher. Germany's Focus-Money magazine reported that euro-zone finance officials, at their meeting last weekend, favoured buying the currency to support it, though they agreed any decision to do so was the ECB's, citing unidentified French government sources. According to the magazine, France wants the ECB to bolster the euro to $0.90. France, which currently holds the presidency of the European Union, denied it had talks with the US to persuade the Federal Reserve to co-operate in the effort.
Asked if the finance ministers had discussed the possibility of the ECB purchasing euros, French Finance Minister, Mr Laurent Fabius, said interventions were an element available at all times. However, according to Mr McMahon, the market does not believe intervention is going to happen soon. Dealers expect there will be veiled references at the press conference after today's meeting to the risk of intervention but are becoming inured to such threats. Some say they are avidly waiting for ECB officials to put a foot wrong, keen for any excuse to push the currency even lower. According to Mr McMahon, the ECB president, Mr Wim Duisenberg, has appeared confused recently about the currency.
In a speech to the European Parliament last week he noted that the euro was undervalued but almost in the same breath said it was the result of the lack of structural reforms.
Oil prices also fell back slightly yesterday on a report that US inventories of heating oil rose for a fifth week, a sign that refineries were working to replenish low supplies. However, supplies still are down 37 per cent from a year ago.
Crude oil for October delivery fell 1.5 per cent to $33.76 a barrel in electronic trading on the New York Mercantile Exchange. Some analysts argue that crude oil prices are unlikely to fall much because a shortage of oil tankers will prevent that new oil from reaching customers. In addition, a lack of spare refining capacity in the US and Europe will hinder the rise of inventories of refined fuels, such as diesel.
