Sunday 25 June 2017

Euro rises amid speculation ECB may act to contain crisis

The euro rose against the dollar and yen amid speculation European Central Bank policy makers meeting tomorrow may signal their willingness to act to prevent the spread of the region’s debt crisis.

The euro gained for the first time in four days against the US currency after ECB President Jean-Claude Trichet spoke in Brussels yesterday. The Swiss franc declined against the common currency. European equities and US stock-index futures rose.

“Trichet reluctantly refused to rule out the possibility of expanding government bond purchases,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp in London.

“There’s a possibility the ECB could step up to the plate sometime soon. Do I think there could be a euro bounce today? Yes. Do I think it will be sustained? Probably not.”

Europe’s currency rose 0.7pc to $1.3075 at 8:43am in London, from $1.2983 yesterday.

It fell versus the greenback in the past month by the most among its 16 major peers. The euro appreciated 0.8pc to 109.46 yen, from 108.65 yesterday.

The dollar was little changed against Japan’s currency at 83.66 yen. The euro gained 0.8pc versus the Swiss franc.

The euro’s 14-day stochastic oscillator chart declined to about 9 today, below the level of 20 that signals an asset’s price is poised to reverse course.

The Stoxx Europe 600 index of stocks rose 0.7pc.

The ECB’s Governing Council will meet tomorrow amid speculation it will again delay its exit from emergency liquidity measures. All 52 economists surveyed by Bloomberg News expect the central bank to leave its benchmark interest rate unchanged at 1pc.

Worsening crisis

“I don’t believe that financial stability in the euro zone could really be called into question,” Trichet told lawmakers. The ECB’s bond program is “ongoing” and “we will see what we decide.”

The common currency declined 6.9pc against the dollar in November, the sharpest monthly drop since May as European leaders struggled to contain a worsening sovereign debt crisis that forced Ireland last week to follow Greece and ask for an international bailout.

European Union governments on November 28 agreed to give Ireland an €85bn aid package. Ireland’s crisis is reminiscent of the one that preceded the EU’s decision in May to set up a €750bn bailout fund to help rescue Greece. On the same day, the ECB took the unprecedented step of agreeing to buy government bonds.

‘Position adjustment’

“It’s position adjustment,” said Cliff Tan, head of emerging-market currency research at Societe Generale SA in Hong Kong.

“More fundamentally and from a medium-term perspective, most risk assets are trading that this particular episode of the European sovereign debt scare is going to be a somewhat moderated version of what we saw in May and June.”

Bloomberg

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