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Euro near seven-month low versus US dollar on policy divergence bet

Monday, October 24, 2016 - 08:51

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The euro stayed near a seven-month low amid speculation the European Central Bank will maintain its easy monetary policy as the Federal Reserve prepares to raise interest rates this year.

[TOKYO] The euro stayed near a seven-month low amid speculation the European Central Bank will maintain its easy monetary policy as the Federal Reserve prepares to raise interest rates this year.

The single currency slipped for a third week after ECB President Mario Draghi said Oct 20 that neither tapering nor an extension of the bank's bond-buying plan were discussed at its two-day policy meeting.

The euro is set to drop for a fifth day, the longest losing streak since May, as expectations fade that the region's central bankers back a sudden end to quantitative easing after March, which is the latest date that they've committed to for the programme. Speculators increased their bearish-euro bets to the most since July.

"EUR/USD has scope to edge modestly lower as expectations for a Fed rate hike and further ECB policy easing in December" affect the difference between borrowing costs, Commonwealth Bank of Australia strategists, including Elias Haddad in Sydney, wrote in a note. The ECB's policy stance may stay "ultra-accommodative" for the foreseeable future, which will continue to weigh on the single currency, they wrote.

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The euro was little changed at US$1.0881 as of 8:59am in Tokyo from Friday, when the currency touched US$1.0859, its lowest since March 10. It was at 113.09 yen from 112.95. The US dollar gained 0.1 per cent to 103.93 yen.

San Francisco Fed President John Williams said on Friday he'd support one rate increase in 2016 and a few more next year. Mr Williams, who doesn't vote on Fed policy this year and won't until 2018, said that he would have supported a September rate increase. The market-based probability of a December hike was 68 per cent on Friday, up from 66 per cent a week earlier.

Net short positions on the euro increased to 109,268 contracts in the week ended Oct 18, compared with 93,472 in the previous period, according to the Washington-based Commodity Futures Trading Commission. It's the largest bearish position since July 26.

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