The euro may lose a “pillar of support” if the European Central Bank extends bond purchases, as that may end the perception of policy divergence with the Federal Reserve, according to Bank of Tokyo-Mitsubishi UFJ Ltd.
“Any significant increase in ECB purchases of sovereign debt would further undermine the perception of the euro as a hard currency alternative to the dollar,” Lee Hardman, a foreign-exchange strategist at the bank in London, wrote in a client note today.
Recent gains were “partly driven by the perceived policy divergence which was likely to occur between the ECB and the Fed,” he wrote. “Now that perception is being invalidated.”
Europe’s common currency gained 0.9 percent to $1.3094 as of 10:32 a.m. in London today, snapping three days of losses that pushed it to its weakest level since Sept. 15 yesterday.