ECB Declines Comment On Currency Market Speculation

The European Central Bank Wednesday declined to comment on financial market speculation that the ECB and other major central banks are preparing to intervene in the foreign-exchange markets to prop up the flagging euro.

The talk comes as traders circulate a report from a U.S. think-tank reportedly noting that the Group of Seven leading industrial nations are concerned about the speed of the euro’s decline. The report is also said to note that major central banks may be preparing verbal intervention to support the currency “if the rout continues.”

At 1350 GMT, the euro traded at $1.2320, well above the fresh four-year low of $1.2143 seen in Asian trade Wednesday.

ECB Executive Board member Lorenzo Bini Smaghi said in an interview with German business daily Boersen Zeitung, published earlier Wednesday: “Our goal is a strong euro for Europeans, in terms of domestic purchasing power. In order to ensure this strong euro, we look at numerous data, including, of course, the exchange rate, and act in accordance with our mandate.”

The ECB’s key mandate is to maintain price stability, which it defines as an annual inflation rate of just below 2% over the medium term.

“We may see a boilerplate statement from officials saying excessive volatility in foreign-exchange markets is not desirable,” said Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York.

“But actual intervention? Not likely,” he said. “Why would the G-7 act now, when the euro is simply moving back toward purchasing power parity, which OECD estimates is around $1.17 currently.”

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