NEWS AND COMMENTARY
November 6, 2000
European Central Bank Intervention Fails to Give Euro Significant Lift
By The Wall Street Journal
Euro Won't Boost U.S. Company Earnings -- More Bad News to Come! ... Weiss comments
NEW YORK - After two rounds of intervention Friday, the European Central Bank intervened in the foreign-exchange markets again Monday, but the bank's efforts were unsuccessful in giving the euro a significant boost.
At about 8 a.m. EST, the euro was quoted at 86.71 U.S. cents, little changed from 86.69 U.S. cents late Friday in New York.
A spokesman for the European Central Bank confirmed the intervention, but refused to say how much was spent to prop up the single currency. Traders estimated that the bank spent between two billion and three billion euros in its first unilateral intervention Friday morning, and may have spent an additional one billion euros Monday morning to underline its intentions.
Immediately following Monday's intervention, the euro managed to climb above 87 U.S. cents to an intraday high of 87.30 cents. Before the intervention, the euro was trading near 86.25 cents. But as it did after Friday's interventions, the currency retreated.
As on Friday, it appeared the European Central Bank and the 11 national central banks of the Eurosystem acted on their own.
The ECB's intervention to boost the euro clearly has failed. It failed on Friday, and today's effort is only making things worse. If the ECB continues its desperate attempt, it risks undermining confidence in the currency -- sending the euro lower. More importantly to American investors, the slipping euro means continued weak profits for U.S. companies operating in Europe.
You'll remember that a host of U.S. companies issued third quarter earnings warnings peppered with excuses from a weak euro to softening demand and slumping sales. These warnings are harbingers of a worldwide economic crunch that has slowly been building.
Sales in Europe were already slowing last quarter. This quarter, a general economic slowdown is gripping the U.S. High oil prices and a tight labor pool and slowing productivity are driving inflation. At the same time, a glut of competition prevents companies from raising prices to bag profits.
Now, a number of companies have already warned Wall Street to expect slower growth and weak profits in the fourth quarter. The brave have even cautioned that next year's earnings will be sub-par as well.
In fact, even if the euro intervention succeeded, a stronger euro wouldn't be enough to make up for the economic woes facing the U.S. Fasten your seat belts -- the Fed has been trying to guide America's economy into a soft landing, but it looks like we're in for a bumpy ride.