Euro fires up after banker’s speech

The Star Early Edition - - INTERNATIONAL - Reuters

THE euro surged to its high­est in over a week against the dol­lar yes­ter­day after Euro­pean Cen­tral Bank President Mario Draghi said fac­tors weigh­ing on inflation in the euro zone were mainly tem­po­rary and the Bank could look through them.

Speak­ing at the ECB’s an­nual pol­icy fo­rum at Sin­tra in Por­tu­gal, Draghi high­lighted a re­cov­er­ing euro zone econ­omy and said that de­fla­tion­ary forces had been re­placed with in­fla­tion­ary ones, but added that stim­u­lus in the form of the ECB’s mone­tary sup­port was still needed.

That sounded to in­vestors, how­ever, like he was ready to give more ground on German de­mands that the ECB get on with start­ing to re­duce the vol­ume of ex­tra eu­ros it is feed­ing monthly into the econ­omy.

The euro surged as Draghi spoke, ris­ing as much as half a per­cent on the day to $1.1255, its high­est level since June 14. It had ear­lier traded around the $1.1187 mark.

“Draghi’s com­ments were quite op­ti­mistic on the growth out­look, talk­ing about a broad­en­ing re­cov­ery and even say­ing growth was above trend,” said Niels Christensen, cur­rency strate­gist with Nordea bank in Copenhagen.

“While talk­ing about inflation he said mainly tem­po­rary fac­tors were slow­ing inflation at the mo­ment, so he’s not too con­cerned about the fall­back in at least head­line inflation.”

Turn-around

Draghi’s com­ments con­trasted with a dovish tone he took on Mon­day, say­ing that su­per low in­ter­est rates cre­ate jobs, fos­ter growth and ben­e­fit bor­row­ers, while re­ject­ing calls to exit su­per easy mone­tary pol­icy quickly.

The sin­gle cur­rency’s strength pulled the dol­lar in­dex – which mea­sures the dol­lar against a bas­ket of cur­ren­cies – to an eight-day low of 96.973.

The green­back was also 0.3 per­cent lower against the Ja­panese cur­rency at 111.560 yen, hav­ing ear­lier risen to a near five-week high of 112.075 in Asian trad­ing.

In­vestors were await­ing speeches by Fed­eral Re­serve of­fi­cials for signs on whether the cen­tral bank will stick to its guns and raise rates this year.

Fed Chair Janet Yellen ad­dresses the Bri­tish Academy in Lon­don at 1700 GMT (7pm), less than two hours after an ad­dress by Philadel­phia Fed President Patrick Harker in the same city at 15h15 GMT (5.15pm).

Fed of­fi­cials have sig­nalled they will look through a slow­down in inflation and con­tinue on their cur­rent tra­jec­tory of in­ter­est rate hikes.

In­vestors, how­ever, are scep­ti­cal and mar­ket pric­ing shows only a 40 per­cent chance of a rise at the Fed’s De­cem­ber meet­ing.

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