Friday, 27 November 2015

Euro on defensive, pressured by ECB stimulus expectations

Fifty-euro notes are seen at the Belgian Central Bank in Brussels in this December 8, 2011 file photo. REUTERS/Yves Herman

The euro languished near a seven-month low against the dollar on Monday, weighed down by expectations that the European Central Bank will ramp up its monetary stimulus next month.

Most major banks have stuck firmly to the view that the euro will fall toward parity with the dollar in the months ahead as the Federal Reserve begins to lift interest rates while the ECB takes the opposite course.

Comments by European Central Bank President Mario Draghi on Friday reinforced expectations for the ECB to unveil more monetary stimulus at its policy meeting on Dec. 3, putting renewed pressure on the euro.

Draghi said the ECB is ready to act quickly to boost anemic inflation in the euro zone. He highlighted changes to the ECB's asset purchase program and deposit rate as possible tools to stop inflation from falling further below its target of just under 2 percent.

The euro was last at around $1.0635 EUR=, down slightly from around $1.0645 in late U.S. trade on Friday. The euro had touched a low of $1.0617 last Wednesday, its lowest level since mid-April.

"The euro seems likely to stay soft going into the (ECB) meeting," said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.

While U.S. Commodity Futures Trading Commission data shows that speculators have been increasing their bearish bets against the euro, the amount of such bets remains below this year's peak, suggesting there may be scope for such bets to increase further, Ino added.

Latest U.S. CFTC data showed that net short positions in the euro increased to their largest since June, in the week ended Nov. 17.

The euro traded heavily on the crosses, hitting a four-month low against the Australian dollar at A$1.4679 EURAUD=R in early Asian trade on Monday.

The euro slipped to 130.63 yen EURJPY=R on Monday on trading platform EBS, its lowest level in about seven months.

With the euro on the defensive, the dollar traded near a seven-month high against a basket of six major currencies. The dollar index last stood at 99.710 .DXY. It had set a high of 99.853 last Wednesday, its strongest level since mid-April.

The dollar has risen against the euro and the yen this month, after strong U.S. jobs data strengthened expectations for the Fed to raise interest rates in December.

San Francisco Fed President John Williams said on Saturday that there is a "strong case" for raising interest rates when Fed policymakers meet next month, as long as U.S. economic data does not disappoint.

Against the yen, the dollar held steady near 122.91 yen JPY=, having backed off from a three-month high of 123.77 yen set last Wednesday.


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