Euro Little Changed After ECB Refrains From Boosting Stimulus

  • Single currency touched its strongest in more than a week
  • No economists surveyed by Bloomberg forecast a policy change

The euro was little changed after European Central Bank officials refrained from announcing additional monetary stimulus and left interest rates unchanged. 

The single currency earlier reached its strongest level in more than a week against the dollar. Traders are now waiting for ECB President Mario Draghi to unveil the central bank’s latest economic and price-growth forecasts at a press conference at 2:30 p.m. in Vienna.

The euro has found support this week even as data showed consumer prices failed to increase for a fourth consecutive month and manufacturing activity was near stagnation. None of the economists surveyed by Bloomberg forecast any change to rates today. The ECB already expanded its bond-purchase program and cut borrowing costs earlier this year in a bid to revive growth and inflation.

“Perhaps the market is fearful that Draghi will not be able to suppress the euro while delivering a modestly upbeat message,” said Chris Turner, London-based head of currency strategy at ING Groep NV.

‘Big Story’

“That is going to be a big story toward the end of the year -- speculation over ECB tapering in the second quarter of 2017, higher bund yields and a higher euro,” he said. “For today, we suspect Draghi will have to work hard to emphasize low or lower rates. Otherwise there’s a risk euro-dollar squeezes to $1.13.”

The euro was at $1.1191 as of 12:49 p.m. London time, after touching the highest level since May 24.

Draghi said at the ECB’s last meeting in April that officials were focusing on implementing measures announced a month earlier, including a corporate bond-buying program that only starts in June. Last week, ECB Vice President Vitor Constancio said he expects inflation will return to near the central bank’s goal two years from now.

The 19-nation euro has fallen about 1 percent against the dollar since the ECB’s April 21 decision. The U.S. currency added to its gains at the end of last week after Federal Reserve Chair Janet Yellen said higher rates in coming months look “appropriate,” underlining the policy divergence with the U.S. Looser policy tends to weaken a currency, and should help the economy, by boosting the money supply.

We “expect the ECB to signal it’s monitoring the effects of already announced steps while continuing to signal willingness to do more if necessary,” BNP Paribas SA foreign-exchange analysts led by global head of strategy Steven Saywell wrote in a research note. “We see scope for the euro to gain ground against the dollar, although it will be U.S. data and Fed expectations that are the main catalysts.”

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