Currencies: Once Again, ECB Steps in to Give Euro a Shot in the Arm

Once again the European Central Bank -- aided by other central banks in the euro-zone -- has intervened in the forex market to buy the single currency.

As noted earlier, the euro had been drifting lower this week despite the confusion in the U.S. over the outcome of the presidential election. Clearly, the ECB was getting worried about this ominous slide and decided to give the euro another shot in the arm. Prior to the intervention, the euro was trading at $0.8550. It then kicked up to around $0.8625 before starting to slip down to current levels of $0.8570.

This is now the third ECB intervention in less than a week, and it is clearly keeping traders on edge. "It's getting to be a problem for the market," said Rob Podorefsky of Fleet Markets.

No clearcut conclusions can be drawn about this additional round of intervention. On the one hand, the euro's recent slide in a basically neutral market is obviously worrying. On the other hand, the message that the ECB is watching the market on an hourly basis must discourage traders from taking speculative positions against the currency. Overall, the situation seems to have created a standoff, with the euro trading in a fairly constricted range, at least until some major new development forces a reassessment.

Meanwhile, U.S. Treasury Secretary Lawrence Summers today again reiterated his commitment to a strong dollar. "Recognition of a strong currency is in our national interest," he said to a meeting of the Securities Industry Association.

The yen has been adversely affected by the ECB intervention and is trading lower vs. the dollar at 107.40. The euro has made headway against the yen and, after opening at 91.50, is now trading around 92.15.

"The dollar has hit resistance, and it bounced back down again ," said Matthew Clements of Prebon Marshall Yamane. Clements expects a medium-term yen rally -- initially to the 106 range -- and then all the way back to the 100 yen/dollar level.

Sterling is unaffected this morning and continues soft around $1.4230. The euro is firmer against the pound at 60.25 pence.

The Swiss franc is firmer against the dollar at SF1.7720. It is steady vs. the euro at SF1.5205.

In its semiannual Monetary Report , the Bank of Canada has upped its forecast growth rate for Canada from 4.25% to 5% in the current year and warns of inflationary pressures in consequence. The report offered some support to the Canadian dollar; as a result, the currency edged away from its worst levels of the day -- at C$1.5445 -- and is now at $C1.5415.

The Australian dollar is marginally stronger at $0.5255 as the euro jumped higher. The New Zealand dollar remains soft but has also trickled higher, to $0.3985.

The South African rand dropped sharply to a new record low at 7.765/dollar, pushed lower by rumors -- later denied -- that the Minister of Finance, Trevor Manuel, planned to resign.

Emerging markets currencies in general have been under pressure amid growing concern over the debt crisis in Argentina. There are rumors of a bailout package from the International Monetary Fund. The Brazilian real touched new one-year lows this morning before moving higher by the bailout rumors.

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