Euro holds steady in edgy trade

The euro has held on to gains made last week when the world's leading central banks launched a mission to rescue the battered currency.

Monetary authorities are particularly sensitive about their credibility so they are not likely to intervene just once and go away

Currency analyst

One euro bought $0.8738 at Monday's close in London, down only slightly from $0.8760 in final trading in New York on Friday.

Dealers said trade was nervous as the markets waited to see if the banks would intervene again.

Some currency traders remain sceptical that the US, which previously opposed intervention, was willing to continue propping up the euro.

Others said more intervention was almost certain.

"Monetary authorities are particularly sensitive about their credibility so they are not likely to intervene just once and go away," Ken Landon, senior currency analyst at Deutsche Bank was quoted by Reuters as saying.

Challenge unlikely

The possibility of fresh intervention, from the European Central Bank or elsewhere, would keep the markets from challenging the euro aggressively in the immediate future, analysts said.

But they questioned whether the euro's recovery would be sustained, saying investors would need better reasons to buy the currency than central bank action alone.

The scale of the intervention had also been relatively modest at about $3bn-5bn, they said.

A further test of the euro would come on Thursday when the Danes vote in a referendum over adopting the currency.

The central banks' intervention had earlier received the tacit endorsement of the International Monetary Fund, which is meeting in Prague amid a series of protests against globalisation.

The IMF's main policy making committee warned on Sunday of the "possible risk from misalignments in the exchange rate."

Horst Köhler, the IMF's managing director who had earlier warned that the euro was seriously undervalued, said that tracking currency movements was a key part of the IMF's role.

The euro, which fell to less than $0.85 last week, rose on Friday to nearly $0.90 before settling back to about $0.8760 after US Treasury Secretary Lawrence Summers said he still backed a strong dollar.

US role the key

At least one influential observer believes that the US will continue to intervene to prop up the euro.

Speaking in Prague, former US Assistant Treasury Secretary Fred Bergsten told BBC News Online he believed there was now a real commitment to boost the euro.

Mr Bergsten, who now heads the Institute for International Economics, said that Lawrence Summers' remarks had been misunderstood by the markets.

Mr Summers had said exactly the same thing when he intervened the boost the Japanese yen in 1998, he explained.

Mr Bergsten argued that the US had intervened because there was a real fear that the combination of high oil prices and the weak euro would hit growth in Europe and around the world.