Eas­ing ex­pec­ta­tions send euro lower

The Pak Banker - - MARKETS/SPORTS -

The euro dipped al­most half a per­cent at the start of the run-in to a Euro­pean Cen­tral Bank meet­ing on Thurs­day widely ex­pected to ease mon­e­tary pol­icy fur­ther to help shore up still shaky euro zone growth.

The bank is ex­pected to push in­ter­est rates fur­ther into neg­a­tive ter­ri­tory and make some kind of ad­just­ment to its bond buy­ing pro­gram, but af­ter the bank dis­ap­pointed many in mar­kets in De­cem­ber, traders are loathe to bet heav­ily against the euro.

Po­si­tion­ing data on Fri­day showed the first rise in dol­lar "longs" - or bets it will rise - since mid-Jan­uary, but mixed mes­sages in Fri­day's U.S. la­bor re­port and other data have largely halted fur­ther progress.

"I think there is still a higher like­li­hood that they overde­liver and the euro goes down to around $1.08, maybe the high $1.07s," said Ulrich Leucht­mann, head of cur­ren­cies re­search at Com­merzbank in Frank­furt.

"But for traders it is still tricky. Clearly there will be a much big­ger move if they do not de­liver."

The euro EUR= traded 0.5 per­cent lower at $1.0954 in early trade in Europe. It fell 0.7 per­cent against the yen to 124.47 yen. EURJPY=

The Cana­dian CAD= and New Zealand NZD= dol­lars, also the sub­ject of cen­tral bank meet­ings this week, were also both weaker, but losses against the yen JPY= kept the gain in the over­all U.S. dol­lar in­dex at just 0.25 per­cent. .DXY The green­back had ini­tially gained on Fri­day in a knee-jerk re­ac­tion to an up­beat non­farm pay­rolls re­port which showed solid job growth of 242,000.

But it went into re­verse as mar­kets ap­peared to latch onto a dis­ap­point­ing fall in hourly earn­ings. While the ro­bust pay­rolls re­port raised prospects of the Fed­eral Re­serve hik­ing in­ter­est rates this year, the de­cline in earn­ings helped tem­per such hopes.

The dol­lar was down 0.2 per­cent at 113.61 yen JPY= af­ter ris­ing briefly to 114.25 on Fri­day fol­low­ing the em­ploy­ment re­port re­lease, just over 2 yen above last month's 16-month low below 111 yen.

"The dol­lar did not gain much against the yen on the non-farm jobs re­port mainly due to the tepid re­sponse by eq­ui­ties. The cur­rency pair con­tin­ues to be driven mainly by risk sen­ti­ment," said Shusuke Ya­mada, chief Ja­pan FX strate­gist at Bank of Amer­ica Mer­rill Lynch in Tokyo.

Those gains for the yen point to the big­ger is­sues around the ECB's moves: neg­a­tive rates, so far, have largely failed to sub­stan­tially weaken the yen or the Swiss franc.

"If all cen­tral banks are tak­ing care of weak­en­ing their cur­ren­cies, it is dif­fi­cult to es­tab­lish a new trend," said Com­merz's Leucht­mann. "You see a gen­eral sit­u­a­tion where the dol­lar is ris­ing again and ev­ery move higher weak­ens the case for what­ever min­i­mal chance of a rate rise the mar­ket is pric­ing in. Right at the mo­ment we are a lit­tle bit stuck."

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