Euro Holds Gain Before ECB Meet as Traders See Policy Maintained

  • Currency climbed the most in three weeks versus dollar Monday
  • One-week volatility at the lowest pre-meeting since 2014

The euro held its biggest gain this month amid speculation that the European Central Bank will maintain its monetary policy when it meets this week.

Expectations for price swings by the common currency during the next week slumped to the lowest before such a meeting since September 2014, as a Bloomberg survey of 47 analysts showed no new stimulus is expected from President Mario Draghi when officials meet April 21.

Europe’s currency has advanced 2.8 percent since policy makers last met March 10 as investors question both the scope for further easing and its efficacy. The ECB sees the stronger currency stemming from the Federal Reserve’s gradual approach to raising rates, while it has no reason to weaken the euro, Reuters reported on April 15, citing three unidentified people from the central bank. Europe’s economic outlook has started to improve, New York Fed President William Dudley said Monday.

“The ECB is very much in wait-and-see mode and that’s likely going to be the case for the next few meetings,” said Bipan Rai, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in Toronto. “Whether or not we can gain some traction above the $1.15 per euro handle is something that I’m watching because it could be important over the longer term and, especially if we were to get that direction ahead of Thursday, we could see some stronger language from Mario.”

The euro was little changed at $1.1310 as of 8 a.m. in Tokyo from Monday when it rose 0.3 percent, the most since March 31. It fetched 123.12 yen after advancing 0.3 percent to 123.11 in New York.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 peers, was little changed following a 0.2 percent decline Monday.

Hedge funds and other large speculators reduced bets on euro weakness to near the lowest since June 2014 last week, a report from the Commodity Futures Trading Commission showed Friday.

Economists predict that the ECB will look to ease further in September. Draghi reiterated in Washington last week that it is “crucial” the very low inflation environment doesn’t become entrenched.

“Although the pace of currency appreciation has not been alarming, the ECB is very likely to be unhappy with the stronger euro,” said Marco Valli, chief euro-area economist at UniCredit Bank AG in Milan. “However, there is not much the central bank can do about it, at least for now.”

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