Euro takes a dip as ster­ling eases

Pound comes off two-week high as mar­kets fac­tor Tory vic­tory into Bri­tish elec­tions

The Star Early Edition - - BUSINESS REPORT - Ritvik Car­valho

THE euro dipped against the dol­lar yes­ter­day af­ter the Euro­pean Cen­tral Bank (ECB) kept in­ter­est rates on hold, while ster­ling eased from a two-week high as mar­kets priced in an elec­tion vic­tory for Bri­tain’s Con­ser­va­tive Party.

The ECB dropped a ref­er­ence to fur­ther in­ter­est rate cuts, while re­peat­ing it ex­pects rates to re­main at record lows for an ex­tended pe­riod and well be­yond its as­set pur­chase pro­gramme.

The euro dropped to $1.12 (R14.46) from $1.41 fol­low­ing the state­ment.

“They have omit­ted the guid­ance that in­ter­est rates might be cut, but they have kept all their other eas­ing mea­sures in place and the com­ment that quan­ti­ta­tive eas­ing could be ex­tended if needed,” Sonja Marten, se­nior forex strate­gist at DZ Bank in Frank­furt, said.

“Maybe the mar­ket was look­ing for a more hawk­ish sig­nal.”

The euro has risen 10 per­cent against the dol­lar in the past five months, partly due to the green­back’s weak­ness, but also on the view that ris­ing in­fla­tion would prompt the ECB to raise in­ter­est rates in early 2018.

But re­ports on Wed­nes­day that the ECB would cut its in­fla­tion fore­casts have damp­ened ex­pec­ta­tions of the bank’s lan­guage veer­ing to­wards a pull­back of its stim­u­lus pro­gramme, also known as quan­ti­ta­tive eas­ing, later this year.

Ster­ling traded at $1.29, com­ing off a peak of $1.29 in the morn­ing Euro­pean trade, its high­est level since May 25.

A fi­nal opin­ion poll pub­lished yes­ter­day as Bri­tons vote in a na­tional elec­tion showed Prime Min­is­ter Theresa May’s Con­ser­va­tives widen­ing their lead to 8 per­cent­age points from 5 points, sug­gest­ing her gam­ble to call the vote to strengthen her po­si­tion in Brexit ne­go­ti­a­tions will pay off.

“Con­fir­ma­tion (of in­vestors’ ex­pec­ta­tions of a Tory win) may sup­port the pound against the euro and the dol­lar, but it does feel like some pos­i­tives might be al­ready baked into the price,” said Valentin Mari­nov, head of forex strat­egy at Credit Agri­cole in Lon­don.

“That also means that any po­ten­tial dis­ap­point­ment, ie a Tory ma­jor­ity be­ing eroded as a re­sult of the snap elec­tion or a hung par­lia­ment could be pretty dam­ag­ing for the pound.”

The dol­lar re­cov­ered some of its losses against the safe­haven yen, up 0.3 per­cent to 110.11 yen per dol­lar. The in­dex that mea­sures its broader strength was up 0.2 per­cent at 96.931.

In­vestors were closely mon­i­tor­ing US Se­nate tes­ti­mony by for­mer FBI di­rec­tor James Comey late yes­ter­day, wor­ried this could dampen al­ready flag­ging mo­men­tum for US Pres­i­dent Don­ald Trump’s agenda of rolling back reg­u­la­tion and over­haul­ing the tax code.

In writ­ten tes­ti­mony, Comey – fired by Trump last month – said that the pres­i­dent asked him to drop an in­ves­ti­ga­tion of for­mer Na­tional Se­cu­rity ad­viser Michael Flynn as part of a probe into Rus­sia’s al­leged med­dling in the 2016 pres­i­den­tial elec­tion. – Reuters

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