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CURRENCIES

Euro holds near 8-week lows ahead of Draghi meet

London

THE euro held near eight-week lows on Thursday as traders prepared for European Central Bank president (ECB) Mario Draghi to speak with investors searching for any signals about when the ECB will begin unwinding its stimulus.

The single currency trimmed earlier gains to trade flat at US$1.2164 after the ECB kept rates unchanged as widely expected. The euro remains about 2-1/2 cents below highs touched only last week, after a bounce in US Treasury yields fired up US dollar-buying and encouraged some to question whether the euro's rally had run out of steam.

Attention now turns to Mr Draghi's news conference which was starting at 1230 GMT. "We think the ECB is probably quite happy with its forward guidance. The euro having weakened probably makes the ECB relatively content with the way markets are priced at the moment," said Adam Cole, chief currencies strategist at RBC.

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After a strong rally into February, the euro has since been stuck in a trading range against the US dollar, as investors lowered expectations of an ECB moving rapidly towards the end of its monetary stimulus programme. So far in 2018, the euro has trimmed gains to be up about 1.5 per cent so far this year compared to more than 4 per cent at the beginning of February.

Elsewhere, Sweden's crown fell to its lowest since late 2009 after its central bank postponed monetary tightening until the end of the year, citing weak inflation. Most investors are bearish on the crown, believing the Riksbank will stick its ultra-dovish tone even as the ECB acts. The crown fell as much as 0.6 per cent to 10.485 crowns per euro before recovering slightly. It was also down half a per cent against the US dollar, its lowest since mid-2017.

The US dollar held near a 3-1/2-month high against a basket of currencies, bolstered by the 10-year Treasury benchmark yield breaching the 3 per cent threshold for the first time in four years. The rise in yields, driven by worries about the growing supply of US government debt and inflationary pressures from increasing oil prices, has caused US-Japan and US-German yield differentials to widen further in the US dollar's favour, leaving the yen and the euro lower.

Against the yen, the US dollar set a 2-1/2-month high of 109.49 yen but later eased to 109.305 yen, down 0.1 per cent. The greenback also fell marginally against the Australian and Canadian dollars after its recent gains. REUTERS