Euro at more than 5-week high before ECB meeting

London

THE euro stood near five-week highs on Thursday before new European Central Bank president Christine Lagarde's first policy meeting, after the Federal Reserve's forecast that it would keep rates on hold through 2020. The Fed announcement late on Wednesday, which followed its decision to leave rates unchanged, sent the dollar to its weakest since early August.

Traders will scrutinise Ms Lagarde's words for her take on the ECB's latest stimulus plans, introduced in September, and the bank's economic forecasts. But analysts doubt the ECB meeting will dislodge the euro from the narrow trading range it's been in through 2019.

"Markets will be trying to get a feel for her style, but most of the substance will be around reforming the strategy and policy framework for the ECB," said Stephen Gallo, European head of FX strategy at BMO Capital Markets, adding that "the bias is towards monetary policy easing". The euro was little changed at US$1.1136 in European trade, not far from Wednesday's high of US$1.1145, the strongest since early November. The currency's strength came from traders unwinding their long positions on the dollar, and from Brexit optimism, said Mr Gallo, adding that he expected this to continue.

The dollar was neutral against a basket of currencies, having fallen earlier to a four-month low of 97.038.

Investors were also on edge ahead of Sunday's deadline for a new round of US tariffs on China to take effect.

Fed chairman Jerome Powell said the economic outlook for the US was favourable, though the Fed forecasts only moderate and slowing growth through 2020 and 2021. New economic projections showed 13 of 17 Fed policymakers foresaw no change in interest rates until at least 2021.

"The Fed is sending a signal of 'Not too hot, not too cold'," Mr Gallo said.

The Japanese yen held on to most of its overnight gains at 108.64.

Among those benefiting from the US dollar's slide were the Australian, New Zealand and Hong Kong dollars - the latter rose to its highest since July - as well as some emerging-market currencies.

The Swiss franc on Thursday also rose to its highest against the dollar since early September. The Swiss National Bank on Thursday kept its negative interest rate on hold as expected, and the franc was little moved against the euro .

Sterling rose to its highest since March at US$1.3229, amid dollar weakness and confidence that Britain's Conservative Party will win a majority in Thursday's election.

A majority would give Prime Minister Boris Johnson's party control of parliament and enable him to lead Britain out of the European Union at the end of January. Anything short of that could prompt a slide in the British currency. REUTERS