Euro Holds Ground Before ECB Meeting as Volatility Gauge Falls

  • Implied vols lowest since Dec. 2014 as no surprise move seen
  • Market will watch if Draghi will talk down euro: Commerzbank

The euro was near its six-month high versus the dollar before the European Central Bank sets interest rates on Thursday.

Economists predict the ECB will refrain from easing monetary policy after expanding its stimulus in March. One-month implied volatility, a measure of expected price swings based on options, was at the lowest level since December 2014 for the euro against the dollar as few analysts said they expect policy surprises this month from either the Federal Reserve or the ECB.

Yet the euro struggled to push higher amid speculation that policy makers may use this opportunity to talk it down. ECB President Mario Draghi is scheduled to speak at a press conference at 2:30 p.m. in Frankfurt.

“We don’t think the ECB will do anything today given they have already done so much last month,” said Carl Hammer, chief foreign-exchange strategist at SEB AB in Stockholm. “People will wait to hear what the ECB says. I guess they’re not happy with the euro’s recent appreciation and might take this opportunity to talk down the currency.”

The euro was little changed at $1.1302 as of 11:30 a.m. in London after falling 0.5 percent on Wednesday. Europe’s shared currency climbed to $1.1465 on April 12, the highest since Oct. 15. It was at 124.02 yen, halting three days of gains.

Rate Forecast

Economists in a Bloomberg survey predict the main refinancing rate will be held at zero, and the deposit rate at minus 0.4 percent. Both rates were cut at the last meeting on March 10 and bond purchases, central to the ECB’s stimulus program, were increased by a third to 80 billion euros a month.

Yet, the euro has since strengthened almost 3 percent against the dollar since the day before the last ECB meeting, partly because the Federal Reserve has signaled it will take a gradual approach toward policy tightening.

There are also signs that the region’s economy has stabilized. The jobless rate slid to the lowest level in more than four years in February to 10.3 percent. While that’s still more than double the U.S. rate, and masks far higher levels in peripheral member states such as Spain, it’s coming down faster than economists had predicted.

“We don’t expect new measures today, but Draghi will have to sell these measures,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. The market will watch “if Draghi will continue talking down the exchange rate as he did last time.”

The euro weakened 0.3 percent against the Swedish krona to 9.1593, halting a four-day gain after the Riksbank said it will add 45 billion kronor ($5.6 billion) to its quantitative-easing program in the second half of this year. The central bank kept interest rates unchanged. Credit Agricole SA said it remains bullish on the currency as Sweden’s economic outlook has improved.

“The latest development should be regarded as smoothing the transition towards a more neutral stance on rates rather than any indication that the central bank is turning more dovish on monetary policy,” said Manuel Oliveri, a foreign-exchange strategist at the French bank. “The krona should continue to be driven by growth prospects, which have further room to improve. We believe the krona should remain a buy on dips.”

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