Euro slumps on Bush boost

Will the ECB step in again to support the euro?

Europe's single currency, the euro, has dropped sharply on news of a court ruling that could clear the way for George W. Bush to be the next president of the United States.

The euro tumbled to a two-week low of less than $0.85 after a Florida judge excluded manual recounts from the final election tally.

The euro will not stay weak

Hans Eichel, German Finance Minister

The euro soon began to regain some lost ground, trading about a fifth of a cent above $0.85.

But by 23.00GMT, it had slid back to $84.76, a fraction off the day's lows.

Mr Bush's economic advisers are against interventions in the currency markets, and are expected to leave the euro unsupported. A Bush win is therefore seen as being damaging for the single currency.

Expectations of a Bush victory 10 days ago had weakened the euro once before.

Intervention rumours

Earlier in the day rumours of European Central Bank intervention had caused the euro to rise against the dollar and the yen in late trading in Asia.

After initial weakness on London's currency markets, the single currency began to climb to $0.8575. News of the Florida court case then triggered a euro sell-off.

There was political support for the troubled euro, with German Finance Minister Hans Eichel saying he did not think it would remain weak for long.

He told journalists in Berlin: "We can be confident about the euro."

Intervention

Earlier, the ECB had declined to comment on whether it had bought euros after the currency suddenly rose sharply in Asia.

It surged half a cent against the dollar just before 0630 GMT and at 0710 GMT was trading at $0.8556 and at 93.21 yen.

At the time, foreign exchange officials said they were not sure whether the gains were the result of ECB intervention.

But they pointed out that the surge had taken place when the currency was down at levels which had prompted the central bank to intervene a week ago.

On Thursday, the euro fell to $0.8510 in New York - its lowest rate since the ECB first intervened on its own two weeks ago.

European central bankers have the chance to offer the euro more verbal support at a banking conference in Frankfurt, where speakers include ECB President Wim Duisenberg.

Weakened

Every intervention by the ECB so far appears to have caught the currency markets by surprise.

This should help to prop up the euro, and make it more expensive for speculators to move against the single currency.

However, in each intervention the ECB has committed only small sums, and acting alone the bank has little chance of making any long-lasting impact on the world's multi-trillion dollar currency markets.