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ECB fails to prop up euro
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November 3, 2000: 11:31 a.m. ET
Bank steps in twice in one day, as euro drops below intervention level
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LONDON (CNNfn) - The European Central Bank's attempt to resuscitate the ailing euro fell hopelessly apart Friday. The currency slipped below early intervention levels, forcing the bank to spend even more money propping up the currency late in the session.
 The euro initially rose against the U.S. dollar to a high of 87.96 after the bank intervened for the first time Friday, but then slid as low as 85.77 cents.
In late afternoon London trading the currency stood at 86.25, still below the intervention level of 86.28 cents in early London trade.
The euro has lost more than a quarter of its value, since its inception in January 1999.
The ECB "has egg on its face," Steve Barrow, a currency economist at Bear Sterns, told CNNfn.com. "The conventional wisdom is for a central bank to buy on the upward momentum. The euro was doing well until the ECB decided to step in. It's a bad, bad day at the office."
Most economists expected the currency to be buoyed by weaker-than-expected U.S. non-payroll data. Recent data suggesting slower U.S. growth have allowed the euro to put on more than four cents from record lows against the dollar set only last week.
The last time the bank intervened was on Sept. 22 after the euro hit a new low. On that occasion the ECB acted in conjunction with other central banks, including the U.S. Federal Reserve, the Bank of Japan and the Bank of England. Analysts estimate that the banks spent between $5 billion and $10 billion on buying up euros, with the bulk of that contributed by the ECB. The Bank of England told CNNfn.com that it bought only  85 million as part of the September action.
Analysts told CNNfn.com they suspected the ECB spent far less money in its latest bout of intervention, and the currency could come under more pressure later in the day:
"Everyone knows that as soon as London closes tonight, the U.S. won't intervene," Barrow said.
The ECB informed other central bank authorities in advance of its action Friday, although they were not invited to take part.
The ECB said that Friday's intervention was in line with the position adopted by the Group of Seven leading economies during a meeting of G7 finance ministers on Sep. 23 in Prague.
Economists stressed that the move was seen as an indication that the ECB would not hike interest rates in the euro zone to help the euro. At its regular fortnightly meeting Thursday the ECB decided to leave key short-term interest rates at 4.75 percent.
The ECB admitted for the first time Thursday that it had under-estimated the impact of a declining euro and rising oil prices on inflation, which shot above the banks target of 2 percent. Inflation hit 2.8 percent in September. A weak currency can cause inflation by driving up the price of imported goods and raw materials.
The ECB said in a statement Friday the "external value of the euro does not reflect the favorable conditions in the euro area." The bank said it acted out of concern the currency's weakness was bad for the global economic outlook and price stability in the euro zone.
Some economists told CNNfn.com directly after the intervention, that they thought its unlikely that the euro's ascent could be maintained.
"The ECB expected news headlines rather than intervention" would support the currency, Malcolm Barr, European economist at Chase Manhattan told CNNfn.com. "The perception of intervention flows has to be more meaningful; they need to make a concerted effort and intervene more often. My guess is after the pay-roll figures are out the euro will soften." 
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