Euro Rally Is Longest in 7 Weeks as Draghi Casts Doubt on Easing

  • ECB chief says need for more action is an `open question'
  • Morgan Stanley predicts increased QE, euro at $1.06 end-2015

The euro rose a third day, extending its longest winning streak since September, after European Central Bank President Mario Draghi suggested further monetary stimulus may not be required.

The 19-nation currency strengthened against most of its major counterparts as Draghi said whether the central bank needs to boost its quantitative-easing program is still an “open question.” In an interview with Italy’s Il Sole 24 Ore published on Oct. 31, he added it’s “too early” to pass judgment on lowering the deposit rate. A manufacturing report from the region also gave the euro a boost, showing factory output unexpectedly accelerated in October.

“It’s a combination of the data, as well as the comments from officials,” said Eric Viloria, a strategist at Wells Fargo & Co. in New York. “That is helping the euro to strengthen today against the U.S. dollar.”

ECB chief damps prospect of more QE

The euro rose 0.1 percent to $1.1016 as of 5 p.m. New York time, extending its longest winning streak since the period ending Sept. 11. It climbed 0.2 percent to 133.02 yen, after touching a six-month low on Oct. 29.

Draghi said at an ECB press conference in Malta on Oct. 22 that the governing council would re-examine its current stimulus policies when it meets on Dec. 3. Considerations would include the size, duration and composition of the ECB’s QE program.

Governing Council member Ewald Nowotny said he’d “advise caution and a steady-hand policy,” even as he emphasized policy makers have to act on inflation, according to an interview with Austria’s Kleine Zeitung published Monday.

“They’re just trying to temper market expectations,” said Mark McCormick, a New York-based strategist at Credit Agricole SA. “Our baseline is that they still do more in December; it’s just a matter of whether they extend the goalposts for QE, top-up the QE program, or cut the deposit rate. I think the latter would have the strongest impact on the euro.”

By contrast, U.S. policy makers signaled last week that they remain prepared to raise their key rate as soon as December.

That’s prompted Morgan Stanley to cut its year-end forecast for the euro to $1.06 from $1.13, according to Ian Stannard, the bank’s London-based head of European currency strategy. Stannard said he sees the ECB extending its stimulus plan by six months to March 2017, increasing monthly bond purchases by 15 billion euros, and cutting the deposit rate.

“I wouldn’t put too much” emphasis on Draghi’s latest comments, he said. “The euro will stay under pressure as the policy message coming from the ECB is quite clear that they will reassess in December.”

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