Paris, Thursday, October 26, 2000 Euro Puts Central Banks to Test Currency Is at New Low, but Few See Any Likelihood of Intervention By Tom Buerkle International Herald Tribune
....The euro touched an all-time low of 82.48 cents, and in late trading in New
York it was at 82.82 cents, compared with 83.72 cents late Tuesday.
The continued decline will put the European Central Bank and the central banks of the G-7 to the test, analysts said. ''Further intervention would be required to convince markets that the G-7 are serious,'' said Joe Prendergast, currency strategist at Credit Suisse First Boston. ''The second time around will not be as easy as the first. The surprise element has been spent.''
Two major changes have occurred over the past month to reduce the prospects of intervention, analysts said.
For one thing, the whiff of panic that pervaded financial markets in September, and seemed to spur the central banks into action, has largely dissipated. Oil prices have stabilized at a little over $33 a barrel, about $3 below their September peak. Major stock markets have rallied in the past week, even though leading U.S. indexes remain below their levels of a month ago. And the euro's decline has been anything but a speculative stampede.
''There are more signs of stability than there were the last time they intervened,'' said Russell Jones, currency strategist at Lehman Brothers International. ''The price action has been pretty calm. It's been a gradual grind downward'' for the euro, he added.
The seeming disarray among European policymakers following comments last week by the ECB president, Wim Duisenberg, in which he cited factors arguing against intervention, also appears to have reduced the chances that the G-7 could agree on concerted action. A reiteration of the Clinton administration's strong-dollar policy by Treasury Secretary Lawrence Summers on Tuesday suggested that U.S. policymakers ''want to demonstrate that they blame Europeans for the problem,'' Mr. Jones said.
Meanwhile, the fundamental factors driving the currency markets continue to favor the dollar at the expense of the euro, analysts said.
The euro has been hit in recent days by fresh evidence that the European economy is slowing more rapidly than that of the United States. French data released Wednesday showed that the growth of consumer spending in the euro zone's second-largest economy slowed significantly in the third quarter, while the latest Ifo monthly survey of German business conditions, released Tuesday, showed a sizable decline.
Investors also are starting to take seriously the prospect of a shift in U.S. economic policy if George W. Bush wins the presidential election, analysts said. Mr. Bush's tax-cut proposals have led some analysts to envisage a repeat of the loose fiscal, tight monetary policy combination of the Reagan years, which propelled the dollar to much higher levels in the mid-1980s. ''The policy settings would be pretty unanimously dollar-bullish,'' Mr. Prendergast said.