Cur­ren­cies tread wa­ter as all eyes turn to ECB Ster­ling falls af­ter weak in­dus­trial data

Kuwait Times - - BUSINESS -

LON­DON: Most ma­jor cur­ren­cies treaded wa­ter yes­ter­day with traders look­ing ahead to a meet­ing of the Euro­pean Cen­tral Bank to­day that could set the tone for mar­kets af­ter the sharp moves in the wake of last month’s US elec­tions. The ECB is widely ex­pected to an­nounce an ex­ten­sion to its quan­ti­ta­tive eas­ing pro­gram, but un­cer­tainty reigns over whether the size of the monthly as­set pur­chases will be kept steady or scaled back, and over whether a for­mal sig­nal on the even­tual end of the as­set-pur­chase pro­gram will be sent.

If the ECB does say it will start to re­duce its as­set pur­chases - so-called ta­per­ing - the euro would prob­a­bly re­bound fol­low­ing a 4 per­cent fall against the dol­lar over the past month, an­a­lysts said. Yes­ter­day the Euro­pean sin­gle cur­rency edged up 0.2 per­cent to $1.0734. It had slumped on Mon­day to $1.0505, its low­est since March 2015, in a knee-jerk re­ac­tion af­ter Ital­ian Prime Min­is­ter Mat­teo Renzi lost a ref­er­en­dum on con­sti­tu­tional re­form and said he would re­sign.

But the euro quickly jumped back to a 3-week high of $1.0797 on the same day as a worst-case po­lit­i­cal sce­nario for Rome ap­peared to have been averted for the time be­ing, and as in­vestors turned their at­ten­tion to the ECB. “Peo­ple had gone into the ref­er­en­dum with a very pes­simistic view and I think the last five years have taught us that, as far as the euro is con­cerned, po­lit­i­cal is­sues of­ten don’t have a last­ing im­pact,” DZ Bank cur­rency an­a­lyst Sonja Marten said in Frank­furt. The dol­lar was flat at 114.03 yen, not far off the peak of 114.83 hit last week, its high­est against the Ja­panese cur­rency since early Fe­bru­ary. The green­back has surged over 10 per­cent against the yen in the past month.

Bank of Ja­pan Deputy Gov­er­nor Kikuo Iwata said yes­ter­day that the cen­tral bank had not shifted its fo­cus away from the pace of money print­ing and stressed it re­mained com­mit­ted to us­ing both rate cuts and as­set pur­chases as key tools to re­vive the econ­omy. “The Fed is hik­ing rates, the ECB might ex­tend the du­ra­tion of its pro­gram..., but the next big thing is go­ing to be ta­per­ing,” said Marten. “There’s a gen­eral move away from adding onto ex­pan­sion­ary mea­sures. So the cen­tral banks that con­tinue to sig­nal that they are will­ing to do that stand out.”

Against a bas­ket of cur­ren­cies, the dol­lar edged down 0.1 per­cent to 100.44, hav­ing poked above 102.00 to a 13-1/2-year high in late Novem­ber as US Trea­sury yields soared on prospects of Pres­i­dent-elect Don­ald Trump adopt­ing large fis­cal spend­ing and re­fla­tion­ary poli­cies. “While we still think that the dol­lar could bounce fur­ther, es­pe­cially in 2017, euro/dol­lar’s short-term di­rec­tion will ul­ti­mately de­pend on what the Fed has to say about the fu­ture di­rec­tion of US in­ter­est rates at its meet­ing next week,” said Kath­leen Brooks, re­search di­rec­tor at City In­dex.

“If the Fed be­lieves that Pres­i­dent-elect Trump’s fis­cal largesse war­rants a faster pace of rate in­creases than is cur­rently be­ing priced in, then the mar­ket will rush to price in higher yields, which will boost the dol­lar and weigh on cur­ren­cies like the euro.” The big­gest mover among ma­jor cur­ren­cies was ster­ling, which fell as much as 0.8 per­cent to hit a one-week low of 85.255 pence against the euro. It also slid half a per­cent against the dol­lar af­ter data showed Bri­tish in­dus­trial out­put suf­fered its big­gest monthly fall in more than four years. The Cana­dian dol­lar was flat ahead of a Bank of Canada pol­icy meet­ing that is ex­pected to see in­ter­est rates left un­changed.

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