Euro Advances on Speculation Further ECB Stimulus May Be Limited

  • Shared currency also buoyed by haven bid amid stocks rout
  • Yen erases earlier slide as New Zealand dollar declines

The euro rose for a second day amid speculation further stimulus from the European Central Bank may be limited and as a selloff in stocks supported refuge demand.

The shared currency climbed against most major peers, while paring gains after ECB policy makers argued in favor of making a deeper cut to the deposit rate and stepping up the monthly pace of bond buying, an account of the Dec. 3 Governing Council meeting showed. The yen erased a drop as the Stoxx Europe 600 Index tumbled to the lowest level since August, while New Zealand’s dollar slid 1 percent against its U.S. counterpart.

“The risk-off environment has a tendency to drive euro higher,” said Greg Anderson, global head of foreign-exchange strategy in New York at Bank of Montreal. “Financial-market weakness could spill into European growth.”

The euro climbed 0.3 percent to $1.0909 at 9:37 a.m. New York time and appreciated 0.1 percent to 128.13 yen. Japan’s currency was little changed at 117.57 to the dollar, after earlier weakening as much as 0.4 percent. The currencies of commodity exporters slipped, with the kiwi declining more than 1 percent against the euro.

ECB Watch

The ECB has disappointed some investors with the scope of its quantitative-easing revamp at its December meeting, an account of which was published earlier Thursday. Some market participants are skeptical about the extent of policy divergence between the ECB and the Federal Reserve, which helped send the euro 10 percent lower in 2015.

The ECB holds a policy meeting Jan. 21, while Fed policy makers gather Jan. 26-27.

“There are some doubts there may be any further QE on the cards,” said Neil Jones, the London-based head of hedge-fund sales at Mizuho Bank Ltd. “If the ECB doesn’t ease further then the sovereign divergence closes up. Hence the euro is higher.”

The ECB introduced its unprecedented bond-purchase plan last year, debasing the exchange rate with the aim of boosting growth and inflation. The Fed raised U.S. rates last month for the first time in almost a decade.

Financial markets across the globe have whipsawed since the start of 2016 as Chinese policy makers struggle to stabilize stocks and as commodity prices slide, boosting demand for havens. The yen has strengthened 2.2 percent against the dollar since Dec. 31, exceeding the gain in any quarter since 2012. The euro is up 0.4 percent this year.

“Early resilience in equity futures dissipated quite quickly, and that’s encouraged risk-averse trades that pushed the euro up through the $1.09 barrier,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The path of least resistance is still supportive for dollar, yen and euro.”

Before it's here, it's on the Bloomberg Terminal.