The euro has fallen again, to close at $0.8459 following conflicting signals from Europe's politicians about the currency and data which showed that German business confidence was weakening.
Senior German and Italian ministers said yesterday that the worries about the euro's weakness have been overstated and pointed to the benefits for business.
However, it bounced back slightly from the low as traders focused on possible intervention this weekend and rumours that the European Central Bank was again intervening in the market to buy euros.
A host of other negative factors also continue to undermine the currency. The German Ifo business confidence survey declined for the third consecutive month, pointing to the possibility that growth there has peaked. According to Mr Oliver Mangan, economist at AIB, the intervention of the ministers gave the market another excuse to sell the currency. Echoing comments which hit the euro last week, the Italian Prime Minister, Mr Giuliano Amato, said the euro's low value "makes our enterprises very happy".
Mr Mangan noted that this implied the politicians were not of a mind to intervene seriously.
Mr Mangan added that there was no respite in sight for the currency and that it was likely to continue pushing slowly lower.
It is bad news for Irish policymakers. The pound is now heading towards parity against the dollar, closing at $1.0741 yesterday and just below 76.16p against sterling, as the UK currency strengthened again yesterday for the first time in several days.
News that the Bank of England's Monetary Policy Committee is still almost split down the middle in favour of rate rises surprised the market which had dismissed the prospect of further interest rate rises in Britain.
The further the euro falls against the dollar and sterling the more likely the increasing costs of imports will be passed on to consumers, putting further pressure on the consumer price index here. Crude oil rose to a 10-year high for the second time this week, after an industry report showed an unexpectedly large decline in US inventories, putting further pressure on prices.
The euro closed at $0.8459 yesterday, down from $0.8515 on Tuesday, and at 59.98p against sterling, amid talk the ECB may have bought the currency at around $0.8470, after New York traders began their trading day.
The euro has fallen as economic growth in the US lures investors to dollar-denominated financial assets. The US economy is expected to grow by 5.2 per cent this year, compared with 3.5 per cent in the euro zone, the International Monetary Fund said yesterday.
Meanwhile, this weekend's meeting of the Group of Seven industrialised nations will be keenly watched to see whether it issues a statement on intervention.
Mr Horst Kohler, the IMF's managing director, suggested that currency purchases by central banks should not be ruled out as a way to bolster the euro.
