Falling euro and oil price pressure raise spectre of further intervention

Speculation is growing that the world's most powerful economies were poised to intervene again after the euro fell and the oil price started to creep up.

Speculation is growing that the world's most powerful economies were poised to intervene again after the euro fell and the oil price started to creep up.

The price of crude mounted a recovery after plunging earlier yesterday following the decision by the United States on Friday to pump out 30 million barrels of oil reserves.

The euro, which hit $0.90 after Friday's co-ordinated intervention, fell to $0.87 - within one cent of its level before the central banks waded into the markets.

A barrel of November Brent briefly slipped below the $30 barrier. It dropped to $29.90, down $1.35 but recovered to $30.70. Last week, it hit a 10-year high of $34.98.

Lawrence Eagles, an analyst at GNI research, said the US had made it clear it would assess the impact of its move "leaving open the possibility that more oil will be released".

Later this week leaders of the 11 member nations of the Organisation of Petroleum Exporting Countries, the oil cartel Opec, hold a summit in Venezuela which may lead to a further increase in oil output.

The oil minister of the United Arab Emirates, Obeid bin Seif al-Nasseri, said yesterday: "When the leaders meet they will see what is necessary and possible."

Pressure is also building on the European Union to sanction the release of its reserves. A spokesman for the European Commission said there was no intention to do that "at the moment" but added that France, which holds the EU presidency, might send a letter to Opec ahead of the Venezuela meeting.

The Organisation for Economic Co-operation and Development yesterday warned economic growth would be cut and inflationary pressure mount unless the oil price fell.

It said if oil remained at $33 a barrel, GDP growth next year would be cut by 0.3 per cent in the US, 0.6 per cent in Japan and 0.5 per cent in Europe. Inflation would rise by 0.5, 0.6 and 0.8 per cent respectively.

"The inflation impact is largest in the European Union, reflecting stronger wage and price responses as in the previous experiences," it said, referring to earlier oil shocks.

Meanwhile, it emerged that an economics unit within the Bank of England has been asked to devise a measure of inflation that excludes erratic elements such as the oil price.

DeAnne Julius, a member of the bank's Monetary Policy Committee, said she had asked economists assigned to work for the "outside" MPC members to test alternative measures.

"If oil prices remain volatile, then measured inflation will also be more volatile," Dr Julius said in a speech last night. "Under such conditions we may need to pay more attention to measures of 'core' inflation."

The euro rose briefly after the Governor of the Bank of France, Jean-Claude Trichet, said there was a consensus among the Group of Seven rich nations that the euro was undervalued.

The comments kept alive speculation the G7 was poised to intervene again, scaring many players from the market. "The time for just talking about intervention is over," said Gabriel Stein, a director at Lombard Street Research

"Actions speak louder than words, meaning there will probably be more intervention if the euro heads back towards $0.85."