Euro Ends Three-Day Slide as ECB Sees Bank Lending Improvement

  • Shared currency rises versus most of its 16 major peers
  • Report reduces prospect of more ECB stimulus, Mizuho says

The euro halted a three-day decline against the dollar as the European Central Bank said lending conditions largely continued to improve in the third quarter, fueling speculation that officials will refrain from extending their asset-purchase program.

ECB President Mario Draghi is set to convene his Governing Council in Malta this week to set monetary policy. He may give an update on officials’ thinking on the potential for further stimulus in a press conference following the meeting on Oct. 22.

The expectation for further easing "has been tempered by some of the data overnight," said Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA.

The euro advanced 0.2 percent to $1.1346 at 5 p.m. New York time. Europe’s 19-nation currency climbed 0.4 percent to about 135.98 yen. The dollar rose 0.3 percent to 119.85 yen.

The euro has gained about 9 percent since reaching an almost 13-year low of $1.0458 in March, when the ECB started its quantitative-easing program designed to revive inflation and lending. The euro’s advance, by reducing import prices, makes it more difficult to achieve that goal.

Rally Limit

"It’s hard for the euro to rally too far, because the ECB is quite sensitive to the exchange rate,” said Serebriakov. “Any euro strength will increase the chance of the ECB moving if not in October then in December."

Credit standards on loans to companies eased for the sixth consecutive quarter, the ECB’s Bank Lending Survey showed Tuesday.

“If the lending environment is on the mend, the chances of further QE drops out of the question -- this would definitely help the euro,” said Neil Jones, London-based head of hedge-fund sales at Mizuho Bank Ltd. “The market is factoring out expectations on Draghi’s speech for Thursday. There was some sense of potential further easing, in part aided by official comment. However, the market is moving away from this thinking.”

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