Business World

Wednesday 23 August 2017

ECB taper talk roils currency markets

Traders work on the floor of the New York Stock Exchange (NYSE)
Traders work on the floor of the New York Stock Exchange (NYSE)

The euro hit a one-year high on Wednesday and German 10-year Bund yields continued to rise after doubling the previous day, as bets grew that the European Central Bank is readying to scale back its €2-trillion stimulus programme.

It was a lively European session. The bond market sell-off and jump in the euro came as a dive in technology stocks after the latest global cyber attack sent European shares to a two-month low.

The euro was eyeing up $1.14 and was at a seven-month high versus the pound though it hit the brakes after ECB sources said President Mario Draghi's comments on tweaking the bank's aggressive stimulus policy had been overinterpreted.

The common currency is now up almost 10pc this year. The head of the Federal Reserve, Janet Yellen, and one of her lieutenants, Patrick Harker, said on Tuesday that they expected to continue raising US interest rates, but it couldn't rally the dollar. That provoked the banking world's single biggest cheerleader for a stronger dollar, Deutsche Bank, to declare the end of the greenback's bull run which dates back to 2014.

"I do think the euro now has got quite significant momentum behind it and I think that will build towards the confirmation of some tapering announcement this year. So I would be long the euro on a tactical basis for the rest of the year," JPMorgan Asset Management's Global Market Strategist, David Stubb, said.

At the same time, core European bonds are the significant area of vulnerability to better euro zone growth and to changes in ECB policy, he added.

"If you are looking at a 10-year maturity and further out, it is a global bond market and the extremely low yields in core Europe stick out alongside Japan and Switzerland as the places that seem stretched in terms of valuation."

Amid all the choppiness, safe-haven gold rose for a sixth day in the last seven. Wall Street, meanwhile, looked set to struggle again after the S&P 500 and Dow Jones took their biggest tumbles in over a month.

Nerves over the latest cyberattack, dubbed Goldeneye, weighed on big tech names including Apple, Google-parent Alphabet, Facebook and Microsoft.

In Asia overnight, MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.4 percent as it pulled back from a two-year high hit on Monday. Japan's Nikkei ended down 0.5pc, as the yen, at 111.900, also took advantage of the dollar's weakness. The banking and insurance sectors, however, outperformed on expectations of higher rates. (Reuters)

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