Euro crashes to fresh low

The single European currency has fallen to yet another record low against the US dollar.

The euro closed at $0.8597 in London, compared with its previous close of $0.8670 which was itself a low point.

Bank of England governor Eddie George threw a lifeline to the beleaguered currency when he said that European central bankers believed intervention was an instrument that could be used.

Speaking in Basle after a meeting of European central bankers, he said they agreed that the euro's exchange rate was out of line with economic fundamentals.

The earlier sell-off had come as hopes faded that the European Central Bank would intervene in the foreign exchange markets to support the currency.

No action from finance ministers

Some market players had hoped that European finance ministers might use this weekend's meeting as an opportunity to talk up the currency.

But little concrete emerged from that Ecofin meeting.

"The market is just continuing where it left off last week as there was disappointment that nothing new came out of the Ecofin meeting and that there has been no action so far," said a trader at a bank in Europe.

Another analyst said: "The market is suspicious regarding the EU's policy toward the euro, after the meeting [of the economic ministers] on Friday. The ECB governor was not even there."

The ECB's latest interest rate rise failed to rally the currency as well, with many analysts stressing that structural reform was needed for the euro to strengthen.

The ECB raised rates by 0.25% to 4.5% earlier this month in the hope of boosting the euro and containing inflation, which is accelerating in the eurozone.

Reform needed

Structural reform across Europe would attract more funds into the eurozone, stemming the flow of funds into the US, analysts say.

At the moment, with US interest rates at 6.5%, holding dollar assets simply offers higher returns for investors.

Monday's sell-off follows the currency's slide last week, which was prompted by comments from German Chancellor Gerhard Schroeder. He said a weak euro was good for exports.

Since its launch in January 1999 the euro has dropped more than 25% against the dollar.

The weakness of the euro has also made it difficult for UK exporters, whose goods have been priced out of many European markets.