Euro steady after ECB keeps policy unchanged

London

THE euro was steady on Thursday after the European Central Bank stuck to its plans for ending bond purchases by the end of the year and as traders prepared for President Mario Draghi's press conference.

Investors will be looking for any new guidance from Mr Draghi on recent signs of a possible slowdown in euro zone growth, as well as the row between Brussels and Rome over Italy's budget plans.

ECB kept rates on hold and remains on course to claw back unprecedented monetary stimulus even as the growth outlook darkens.

Morgan Stanley analysts said that after recent falls in the single currency, euro/dollar may face a short squeeze if ECB and Mr Draghi strike a surprisingly bullish tone.

"The global economy is continuing to face higher inflation and tightening capacity, suggesting that central banks may need to continue tightening even in the face of rising market volatility," they said in a note.

The euro was up 0.1 per cent at US$1.1409, recovering from two-month lows of US$1.1378 hit on Wednesday. The dollar index was off 0.1 per cent at 96.333.

Elsewhere, the Japanese yen and Swiss franc gained only briefly as currency traders showed little reaction to a wave of selling across stock markets, although China's offshore yuan hit a 22-month low on worries about an economic slowdown.

Despite the downturn in stocks, amid worries about corporate earnings growth and doubts about the global economy, forex investors only tiptoed into the yen and Swiss franc.

"To a large extent, until today, there had been a lack of reaction in the FX markets. We are starting to see this come through," said Christin Tuxen, FX strategist at Danske Bank.

Relatively small currency swings reflected how recent data had shown a "loss of momentum in global growth", rather than a risk of recession or something serious enough to spook investors, he added.

The yen rose as high as 111.82 versus the dollar, then retreated in European trading to settle at 112.36, down 0.1 per cent on the day.

The Swiss franc gave up all its gains versus the dollar to trade at 0.9994 and was down 0.3 per cent against the euro.

However, in a sign that the worries about global growth, particularly in China, are beginning to bite, the offshore yuan hit its weakest since the start of January 2017, down 0.3 per cent on the day at 6.9668. The Chinese currency later clawed itself back and erased most losses. REUTERS