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ECB again props up euro
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November 6, 2000: 7:00 a.m. ET
European Central Bank buys euros in third such move in two trading days
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LONDON (CNNfn) - The European Central Bank said Monday it purchased euros in the open market, the third time in two trading days the euro zone's central bankers surprised economists by staging unilateral action to bolster the currency.
Economists said the ECB, which is in charge of monetary policy in the 11 single-currency nations, increasingly favors intervention in the currency market as a means of combating inflation pressure. The central bankers have already raised interest rates - their other main tool to curb price rises -- six times this year.
Those rate hikes, which slow economic activity by raising borrowing costs, could jeopardize the euro zone's economic revival, economists said.
"It seems as though they are taking a new line now," said Neville Hill, an economist with CS First Boston. "There's now a concerted shift away from using interest rates as a mechanism."
Hill cited recent reports about German business confidence and weaker auto sales as suggesting that the ECB rate hikes over the past year may be slowing growth in the region. 
The intervention drove the currency as high as 87.30 U.S. cents early Monday in London, before the euro eased to 86.90 cents. It fetched 86.68 cents in late New York trading on Friday.
"Most of the inflation in Europe is imported," said Hill. In addition to the high cost of oil, which is priced in dollars, the weak euro makes imports more costly for consumers in the euro zone. "But it's still early days to tell whether [the intervention] will be successful or not."
ECB: active on rates, euro
The central bank said the move was in line with its actions on Friday, when the ECB intervened in two separate bouts. That came as the euro staged a five-day rally against the dollar, prompting some economists to say the currency was likely to revive without extra support from the central bankers.
An ECB spokeswoman told CNNfn.com that, as on Friday, the bank acted without financial support from other central banks.
On Sept. 22, the ECB bought euros to prop up the currency, acting on that occasion in concert with the U.S. Federal Reserve, the Bank of Japan, and others.
ECB President Wim Duisenberg admitted for the first time Thursday that the central bank had underestimated the impact of a declining euro and rising oil prices on consumer price inflation, which rose to 2.8 percent in September and is now solidly above the bank's target of 2 percent.
Euro-zone growth has been strong in recent months, but the U.S. economy has grown even faster. That prompted investors to move funds increasingly into dollar-denominated assets, undermining the euro.
But recent reports have suggested U.S. economic growth may be slowing to a more sustainable pace, narrowing the gap between the U.S. and euro-zone economies. Such a trend would tend to favor a euro rebound.
The euro has lost more than 25 percent of its value against the dollar since the common currency was born in January 1999. 
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