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US dollar, euro tread water as ECB meeting comes into view

Wednesday, December 7, 2016 - 11:40

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The euro and US dollar were steady on Wednesday as traders paused for the outcome of Thursday's European Central Bank policy meeting, which may set the tone for currency markets after the sharp moves in the wake of last month's US election.

[TOKYO] The euro and US dollar were steady on Wednesday as traders paused for the outcome of Thursday's European Central Bank policy meeting, which may set the tone for currency markets after the sharp moves in the wake of last month's US election.

The euro was little changed at US$1.0720 after slipping 0.5 per cent overnight.

The common currency had slumped on Monday to US$1.0505, its lowest since March 2015, in a knee-jerk reaction after Italian Prime Minister Matteo Renzi lost a referendum on constitutional reform.

But it quickly jumped back to a three-week high of US$1.0797 on the same day as a worst-case political scenario for Rome appeared to have been averted for the time being.

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Market voices on:

"Some in the market may have gotten ahead of themselves and excessively priced in the ECB mentioning policy tapering when the euro surged on Monday," said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.

"We have already seen the euro pull back yesterday as some of the excessive expectations were trimmed."

The euro drew a boost last Friday by news that the ECB, while possibly extending its bond purchases beyond next March, may consider sending a formal signal that the asset purchase programme will eventually end.

The US dollar was steady at 114.069 yen after edging up about 0.2 per cent overnight following a modest rise in US bond yields. It was still some distance from the week's high of 114.775 touched on Monday.

"There are not many factors for the market to trade on ahead of Thursday's ECB meeting, which remains the week's focal point," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

"Of biggest interest for currencies is whether the ECB will hint at policy tapering. It could spell the beginning of the end of the Trump rally if the ECB does provide such a hint."

The US dollar index was effectively flat at 100.47. It had poked above 102.00 to a 13-1/2-year in late November as US Treasury yields soared on prospects of president-elect Donald Trump adopting large fiscal spending and reflationary policies.

The Australian dollar was down 0.4 per cent at US$0.7428, hit after third quarter gross domestic product (GDP) data showed the country's economy shrank for the first time since 2011.

The New Zealand dollar was flat at US$0.7117, drawing support from a falling Aussie. The kiwi has clawed back from a trough of US$0.7070 set on Monday when the country's Prime Minister John Key unexpectedy announced his resignation.

Commodity-linked currencies like the Canadian dollar sagged in the wake of retreating oil prices.

The Canadian dollar ended a three-day winning run to end lower overnight. It was down about 0.1 per cent at C$1.3289 per US dollar.

Canada's loonie had surged to a six-week high of C$1.3236 per US dollar on Monday as oil prices rallied after Opec forged a deal last week to cut output.

REUTERS

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