The euro fell one per cent against the dollar and two per cent against the yen on today to hit this year's low as comments by the European Central Bank dampened hopes of intervention to support the single currency.
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ECB President Mr Wim Duisenberg
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The euro hit six-month lows below $0.85 after ECB President Mr Wim Duisenberg said today the bank did not have an exchange rate target and the euro's rate would pose a problem only if did not support the ECB's inflation target, which was not the case.
Mr Duisenberg reiterated the bank's focus on inflation to ensure the smooth functioning of financial markets and to boost euro zone economic growth and employment.
He emphasised the need to maintain a steady medium-term price stability orientation. "The ECB is convinced that by rigorously fulfilling this mandate, monetary policy is making its most effective contribution to the realisation of strong output growth and satisfactory employment prospects," Mr Duisenberg said.
The bank took financial markets by surprise on May 10th by cutting interest rates by 25 basis points despite rising euro zone inflation. Against a backdrop of flagging growth, the euro has fallen steadily since then on fears of stagflation.
Mr Duisenberg also called for a greater role for national central banks in banking supervision with the advent of the single currency.
"My conclusion is that the successful pursuance of financial stability in Europe, which is a prerequisite for economic growth, could benefit considerably if NCBs maintain and even reinforce their role in prudential supervision," he said.
AFP