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Euro weakens against US dollar before ECB meeting

Thursday, October 20, 2016 - 06:17
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The euro weakened against the US dollar on Wednesday as investors focused on whether European Central Bank President Mario Draghi will give any indications that the central bank will begin tapering its bond purchase programme when it meets on Thursday.

[NEW YORK] The euro weakened against the US dollar on Wednesday as investors focused on whether European Central Bank President Mario Draghi will give any indications that the central bank will begin tapering its bond purchase programme when it meets on Thursday.

The ECB may defer until December any changes to its asset purchase, sources familiar with the discussion said last week.

"Ahead of the ECB there's a little bit of lightening up of the euro. There's some focus on the possibility that Draghi will push back very aggressively against recent talk of tapering," said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.

The euro slipped 0.11 per cent against the greenback to US$1.097.

Any signal that the ECB plans to reduce bond purchases could roil bond markets globally, and create volatility for currencies.

"If (Draghi) gives any signal in support of tapering at some point, that would be very toxic for fixed income globally," Mr Franulovich said.

The US dollar has been largely tracking US Treasury yields in recent weeks on the view that the US Federal Reserve is likely to raise interest rates when it meets in December.

The greenback has rallied around 3 per cent since the end of September, mirroring a climb in benchmark US Treasury yields to a four-month high above 1.8 per cent.

The US dollar index against a basket of six major currencies was little changed on Wednesday after slipping slightly in two prior sessions as investors continued to evaluate the likelihood of a December rate hike, and took profits from the recent US dollar rally.

The index was up 0.02 per cent at 97.895.

The Canadian dollar weakened after Bank of Canada cut its growth forecast and Governor Stephen Poloz said the central bank had considered easing monetary policy.

"The bank did maintain its dovish tone which means we shouldn't price out rate cuts just yet," said Bipan Rai, senior macro and foreign exchange strategist at CIBC in Toronto.

The Australian dollar, meanwhile, strengthened after data showed that China's economy expanded at a steady 6.7 per cent in the third quarter and looks set to hit Beijing's full-year target.

"That's indicative of still healthy demand, especially for commodities. In the immediate-term that's supportive for the Australian dollar," sadi Mr Rai.

The Canadian dollar fell 0.15 per cent against the greenback to US$1.31 and the Australian dollar gained 0.67 per cent against the US currency to US$0.77.

REUTERS