Publications
Partners
Tokyo - The euro slipped toward a seven-month low amid speculation the European Central Bank will maintain its easy monetary policy as the Federal Reserve prepares to raise interest rates this year.
The single currency declined for a third week after ECB President Mario Draghi said October 20 that neither tapering nor an extension of the bank’s bond-buying plan were discussed at its two-day policy meeting.
The euro weakened for a fifth day, the longest losing streak since May, as expectations fade that the region’s central bankers back a sudden end to quantitative easing after March, which is the latest date that they’ve committed to for the program. Speculators have increased their bearish-euro bets to the most since July.
“The euro is coming under pressure from monetary policy divergence as the ECB looks set to prolong its accommodative stance, while the Fed is probably paving the way for a December rate hike,” said Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management. The US “is at least resilient relative to other regions and that’s supporting the dollar.”
The euro slipped 0.1% to $1.0875 as of 07:56 from Friday, when the currency touched $1.0859, its lowest since March 10. It was little changed at ¥112.96. The dollar gained 0.1% to ¥103.87.
San Francisco Fed President John Williams said on Friday he’d support one rate increase in 2016 and a few more next year. Williams, who doesn’t vote on Fed policy this year and won’t until 2018, said that he would have supported a September rate increase.
The market-based probability of a December hike was 68% as of Friday, up from 66% a week earlier.
Net short positions on the euro increased to 109 268 contracts in the week ended October 18, compared with 93 472 in the previous period, according to the Washington-based Commodity Futures Trading Commission. It’s the largest bearish position since July 26.
The single currency is set to slide toward $1.06 within the next seven weeks, according to Macquarie Bank ECB policy makers next meet on December 8.
“The euro should stay heavy into the December ECB meeting,” said Gareth Berry, a foreign-exchange and rates strategist in Singapore at Macquarie. “Draghi seems intent on extending the QE programme beyond March at the current pace” of €80bn per month.
Read Fin24's top stories trending on Twitter: Fin24’s top stories
