Intervention fears halt drift of euro

The euro hit a new post-intervention low of $0.866 yesterday as capital flows continued to drain to the US.

But the exchange rate then scurried up to $0.870 at the end of London trading - the same rate as 24 hours before - on expectations that the European Central Bank would mark the fortnight's anniversary of the initial intervention with a second round.

The euro dragged sterling down with it. Sterling ended London trading at $1.447, down a little more than half a cent on Thursday's closing price.

The euro closed the trading week at 60.14p sterling, up marginally on Thursday's closing rate of 59.94p. The yen found some consolation yesterday at the end of a shaky week due to adverse capital flows. It strengthened against the dollar to Y108.8 from Y109.5 on Thursday. It also ended higher against the euro at Y94.58, compared with Y95.20.

The euro/dollar rate's failure to react to yesterday's strong US payroll data was evidence of a paralysis born not of sleep but of fear.

Mr Marc Chandler, chief currency strategist at Mellon Bank in New York, said: "There is an implicit dread of intervention. People don't want to buy the dollar and then get burned."

Traders said that, without this fear, news that US unemployment had fallen sharply to its lowest rate since April would have sent the dollar higher.

Mr Jesper Dannesboe, chief forex strategist at Dresdner Kleinwort Benson, said: "If it hadn't been for the fear of intervention, the dollar would have rallied 0.5 or 1 per cent against the euro on the data."

The euro's downward drift has left traders expecting imminent intervention, with rumours abounding. Mr Tony Norfield, head of forex research at ABN Amro, said: "Given the euro's dreadful performance, intervention is not far away."