The euro's post-intervention rally will soon lose steam unless central banks in Europe, the United States and Japan agree to again join forces and prop up the currency, traders in Asia said Monday.
The euro continued to rebound in Asian trade after Friday's joint intervention, which caught markets wrong-footed, and a weekend Group of Seven (G7) meeting which agreed to "cooperate in exchange markets as appropriate."
"I think the total amount of the concerted intervention was around 2.5 billion euro ($2.2 billion)," said Sanwa Bank dealer Mitsuru Sahara.
"It was pretty small for an intervention, as usually the scale is five to six times as much as this," he said.
Further intervention might be in the works from the European Central Bank (ECB), US Federal Reserve and Bank of Japan, Sahara noted.
By 3:00 p.m. (0600 GMT) in Tokyo the euro had recovered to $0.8801, up from $0.8764 in New York late Friday following the intervention and just $0.8627 here before the central banks moved.
"It's quite significant that the US has joined with the Europeans and Japan in intervening," noted Commonwealth Bank dealer John Noonan in Sydney.
"Whether or not this will change the real money flow out of dollars and into other currencies, particularly the euro and our beleaguered Aussie dollar, that's the question in everybody's mind," he said.
This was doubtful, dealers said.
"In the end, the value of the currency is decided by economic fundamentals in each country," said Fuji Bank dealer Hideki Tsukamoto in Tokyo.
"The fundamental gap will lie between the dollar and the euro as long as the European economies are suffering recession fears and the US economy continues to perform well, despite some equity concerns," Tsukamoto said.
In addition, the intervention failed to carry enough weight, another dealer said.
"If the intervention had really been aimed at turning around the trend, then they would have continued intervening until the euro rallied back to the $0.90 level," said Kokusai Securities foreign exchange analyst Takuo Maeda.
The intervention, which was also joined by the Bank of England and Bank of Canada, was the first by the ECB since the euro's launch on January 1, 1999, since when it has lost about 28 percent of its value.
It was also the first coordinated intervention by the world's leading central banks since they agreed in the 1985 Plaza Accord to pull down the dollar.
The euro reacted by surging to $0.8992 before slipping back, partly because of discouraging remarks from US Treasury Secretary Lawrence Summers.
"Our policy on the dollar is unchanged," he told a briefing in Washington before Saturday's G7 meeting in Prague.
"As I have said many times, a strong dollar is in the national interest of the United States."
The remarks added to confusion about why the United States joined the intervention, dealers said.
But Japan's interest in a stronger euro was clearer, they said, as the Tokyo Stock Exchange rose in the intervention's aftermath.
"Foreign investors in particular had been worried about the yen's strength against the euro, which could damage Japanese corporate earnings," said Nikko Securities senior market analyst Kazue Mayuzumi.
"Investors appreciated the fact that G7 leaders were able to issue appeals to curb soaring oil prices and a slumping euro," he added.— (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)
