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ECB buys euros yet again
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November 9, 2000: 11:32 a.m. ET
Central bank in new bid to lift euro as weak currency threatens higher inflation
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LONDON (CNNfn) - Reaching into its policy quiver yet again, the European Central Bank purchased euros in the currency market for the fourth time in a week Thursday, continuing its effort to reinforce a common currency that has stubbornly sat near its record lows against the dollar.
The euro strengthened against the dollar following the move, climbing to 86.13 U.S. cents from 85.52 cents in late New York trading on Wednesday. The euro hit an all-time low against the dollar on Oct. 26 at 82.25 cents, and is currently down about 27 percent from its value at launch in January 1999.
As with similar moves on Monday and two separate bouts of buying last Friday, the ECB intervention took the action unilaterally - in contrast to its unified purchase of euros with other leading central banks in late September.
The ECB purchases are intended to prevent the weak currency from fueling inflation pressures. A weak euro makes imports into the 11-nation euro zone more expensive.
The ECB move on Thursday was coordinated with the central banks of individual euro-zone member states, the spokesman said. The ECB's view that the euro is undervalued by currency markets was underpinned in September by a communiqué issued by G-7 industrialized nations to support the euro.
"Smacks of desperation"
But economists said for the intervention to carry more weight and turn the tide for the euro, the ECB needs to line up overseas supporters, such as the Bank of England, the U.S. Federal Reserve or the Bank of Japan.
"In the past, the central plank for monetary officials such as the Bundesbank has been that intervention needs to be bilateral," said Ian Gunner, a currency market strategist at ABN Amro in London. "Suddenly that's out the window. It's confusing the market and frankly, it smacks of desperation."
Economists have said the ECB's purchases in recent days are intended to show the central bank is committed to a long-term defense of the currency. The 17-person panel, which has already boosted interest rates six times this year to ease inflation pressures, is said to be leery of raising interest rates again to combat inflation because higher rates have a negative effect on economic growth in Europe.
The currency market so far has shrugged off the ECB's unilateral intervention efforts. Gunner said the ECB was making the best of a situation that's partly out of its control.
"Everyone blames the ECB, but it's really up to national governments," he said, adding that policies such as France's 35-hour working week, strict tax policies and regulatory shackles on business have deterred investment that could help the euro to recoup its lost ground.
Describing the intervention as "cosmetic", Gunner said it "doesn't solve the problem - just because the ECB intervenes doesn't mean Europe is attractive."
Traders in the currency market have been buying euro futures, said Gunner, suggesting the market might correct the euro slump on its own without ECB support.
Anticipation about the outcome of the U.S. election has also unsettled the currency market, he said, arguing that as president, Al Gore would be more likely than George W. Bush to continue the Clinton administration's cooperation in currency market actions to support the euro. 
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ECB
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