The European Central Bank's intervention on Friday, 22 September in support of the falling euro, acting in cooperation with the Bank of Japan and the US Federal Reserve, briefly evoked memories of the 1985 Plaza accord which successfully drove down the dollar. But the time when world central banks could dictate exchange rates to the markets have passed.
Market participants did widely welcome the intervention as "a clear signal that the ECB is not standing by watching the risk of a potential crisis increase further," says Julian Callow, chief European economist at Credit Suisse First Boston. The intervention was perceived very positively. It came as something of a surprise ahead of the G7 meeting and the participation of the US gave it far more credibility.
But, while central bankers basked in the glory of their achievement at the IMF/World Bank meetings in Prague that weekend, many market participants were getting confused as early as Monday, as they expected more action.
By Tuesday, Robin Marshall, director of European research at Chase Manhattan, was wondering whether the stabilizing effect will have any lasting impact at all. "The euro is likely to be under more downward pressure - with a 'No'-vote on the euro by the Danes, the ECB will be in exactly the same position as a week before.