Euro gains after ECB says it will slow bond buying pace

London

THE euro extended modest gains versus the US dollar on Thursday after the European Central Bank (ECB), as expected, said it would slightly reduce the pace of bond buying under its emergency scheme.

The euro rose 0.3 per cent to the day's high of US$1.1840 immediately after the announcement but then fell back to trade at US$1.1837, well below Sept 3's two-month high of US$1.1909.

The ECB will in the next three months buy bonds under its 1.85 trillion euro (S$2.9 trillion) pandemic emergency purchase programme (PEPP) at a pace moderately lower than the 80 billion euros a month it bought over the previous two quarters.

That is a token step towards unwinding the emergency economic aid it has put in place during the pandemic. Analysts polled by Reuters had said they saw bond buying under the ECB's PEPP falling to possibly as low as 60 billion euros a month, before a further fall early next year and the scheme's end in March.

But the ECB did not signal any further withdrawal of support, and maintained its long-standing guidance that it will ramp up support further if it becomes necessary.

Stocks fell on concerns about the global economy, helping currencies considered safer.

That cautious mood helped the safe-haven Swiss franc. The dollar dropped 0.5 per cent to 0.9174 francs, while the euro extended its drop after the ECB announcement and was last down 0.3 per cent to 1.0859 francs.

On Sept 8, the franc had hit a two-month low against the euro. The yen was also stronger, with the dollar losing 0.2 per cent to 130.06 yen. The dollar index dropped 0.2 per cent to 92.477.

Sterling bucked the trend of weakness versus the dollar with a 0.5 per cent gain to US$1.3835 after falls earlier in the week. The Canadian dollar gained 0.1 per cent to C$1.2677 per US dollar, having fallen on Sept 8 to its lowest since Aug 23.

The Bank of Canada left its key interest rate at a record low 0.25 per cent and maintained its current quantitative easing program on Sept 8.

The Chinese yuan gained 0.1 per cent to 6.4525 per dollar in offshore trade, though price data showed a worsening environment for Chinese businesses. China's factory gate inflation hit a 13-year high in August despite Beijing's attempts to cool them while consumer inflation slowed unexpectedly in a sign of soft consumption. REUTERS