In a move that could ease inflationary pressures here, the world's richest countries have signalled they will intervene again to boost the euro if the currency fails to rise further.
Market analysts believe that central bankers in Europe and the US are determined to see the euro stabilise around 90 cents to the dollar, almost 3 per cent higher than its closing price last Friday.
Finance ministers from the Group of Seven (G7) leading industrialised countries said in Prague yesterday they remained concerned about the potential impact of the euro's weakness on the world economy.
"In the light of recent developments, we will continue to monitor developments closely and to co-operate in exchange markets as appropriate," the ministers said in a joint statement.
Any recovery in the beleaguered euro will be warmly welcomed by the Government, which is grappling with an inflation rate of 6.2 per cent and is under mounting pressure to renegotiate the Programme for Prosperity and Fairness.
Ireland's inflation rate is out of step with the rest of Europe, which is averaging around 2.5 per cent.
Dr Dan McLaughlin, chief economist at ABN Amro, described the move to boost the euro as "the best news on inflation we have had for a long time".
He added that if the Clinton administration moves to release more oil onto the market and also delivers lower prices, the combination could mean consumer prices will fall back quite dramatically next year.
The euro rose sharply on foreign exchange markets on Friday after the European Central Bank (ECB), the US Federal Reserve and the Bank of Japan staged a co-ordinated sell-off of dollar reserves to prop up the currency. The intervention, which was supported by the Bank of England and the Canadian central bank, was the first such action since the euro was launched. The ECB President, Mr Wim Duisenberg, told reporters in Prague that the instrument of intervention remained "in our arsenal" and said he did not need the authorisation of EU finance ministers to use it again.
Last week's intervention took the markets by surprise, not least because it appeared to represent a reversal of the US government's "strong dollar" policy. The US Treasury Secretary insisted in Prague that there was no contradiction between his belief that a strong dollar was good for America and his willingness to support the euro.
But most analysts believe that Washington's change of heart was prompted by profit warnings from some US companies suffering from the competitive disadvantage imposed by a strong dollar.
The international financier, Mr George Soros, praised the intervention which, he admitted, had taken him by surprise and predicted that the ECB would attempt to hold the euro above 90 cents.
"I think that by putting a floor under the euro, the destabilising effect can be avoided," he said.
The ECB's chief economist, Prof Otmar Issing, hinted on Saturday that the ECB may be preparing for another interest rate rise to counteract the inflationary impact of high oil prices. But the chief executives of two of Germany's biggest banks yesterday urged the ECB to hold fire on rates rather than risk stalling the economic recovery in the euro zone.
"Up to now there has not been a wage-price spiral nor is there any sign of this occurring next year. We hope that the ECB will adopt a more relaxed stance," Commerzbank's Mr Martin Kohlhaussen said.