Euro takes breather after rally

ECB bond expectations prompt currency’s slip

The euro eased on Wednesday to take a breather from a rally prompted by optimism over the eurozone’s economy and expectations that the European Central Bank (ECB) will wind down its bond-buying stimulus in 2018.

The euro slipped 0.10 percent to $1.2048. The currency hit a fourmonth high of $1.2081 on Tuesday, marking a gain of roughly 3 percent from a mid-December trough and bringing it close to a September high of $1.2092, the currency’s highest level since early 2015.

It was boosted by data showing eurozone manufacturers ended 2017 by ramping up activity at the fastest pace in more than two decades as rising demand suggested they will start the new year on a high.

The euro was also supported by expectations of a shift in ECB monetary policy this year.

The ECB board member in charge of the central bank’s market operations, Benoit Coeure, said at the weekend that he saw a “reasonable chance” that bond purchases would not be extended beyond September.

“It’s this monetary policy normalization everywhere that’s playing catch-up to the Fed, and that’s why the dollar is weak,” said Heng Koon How, head of market strategy at United Overseas Bank in Singapore.

The dollar index against a basket of six currencies held steady at 91.902.

Investors were due later on Wednesday to turn their attention to the minutes of the Federal Reserve’s December policy meeting, when it raised interest rates for the third time in 2017.

China’s yuan also eased against the US dollar on Wednesday. Prior to market opening on Wednesday, the People’s Bank of China, the country’s central bank, set its official yuan midpoint at 6.4920 per dollar, breaching the key threshold 6.5 per dollar level.

Wednesday’s official midpoint was 0.24 percent firmer than Tuesday’s fix of 6.5079 and was the strongest since May 3, 2016.