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Archive for Saturday, September 23, 2000

U.S. gives boost to euro

September 23, 2000

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— The powerful U.S. Federal Reserve unexpectedly joined its counterparts from Europe, Japan and around the world to intervene in the currency markets Friday and coax signs of life from the beleaguered euro.

The action had the desired effect, briefly pushing the currency up more than 5 percent. But as the euro declined later in the day, experts said the lasting impact of the unprecedented move remained in question.

Still, the fact that the intervention was done together by the world's three most powerful central banks along with numerous others gave it a better chance for long-term success, analysts said. Such interventions to boost a currency can be effective only when done in a coordinated fashion, said Petra Koehler of Dresdner Bank.

It was the first time in two years that the U.S. Treasury sold dollars to help a foreign currency. In 1998, in the wake of the Asian financial crisis, it rescued the tumbling Japanese yen.

Earlier this week, U.S. Treasury Secretary Lawrence Summers hinted at a reluctance to join in an intervention, suggesting the United States favored monetary policies that kept the dollar strong.

After Friday's intervention, Summers said the U.S. position hadn't changed and that the Fed wouldn't have intervened without signs favoring a potential for European growth.

"There's no question that there are ongoing reforms in Europe," Summers said in Washington before leaving for Prague. "Continuing structural reforms in Europe to increase productive potential, to raise incentives for job-creating capital investment in the continent are recognized as priorities by European leaders."

Friday's move was the first time the European Central Bank stepped in on behalf of the euro, which was launched by 11 countries in January 1999. Actual bills and coins begin circulation in January 2002.

The euro bottomed out at 84.38 cents on Wednesday a loss of more than 27 percent since its launch and had stabilized around 85 cents, but it jumped above 90 cents as news of the intervention hit the markets. Hours later, the currency dipped again, flirting with the 88-cent level.

"It's not back down to where it was. So it will be a test of nerves," Takatoshi Ito, a Japanese Finance Ministry official, said in Prague.

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