Dollar edges off lows against euro, central banks eyed

Pound to euro exchange rate

THE European Central Bank left its ultra easy monetary policy stance unchanged as expected yesterday, keeping rates at record lows and even leaving the door open to more asset buys if the outlook worsens.

"Most sensible commentary is rightly pointing out it's doubtful Draghi will deliver anything tangible in terms of a tapering tomorrow", said Richard Franulovich, senior currency strategist at Westpac Banking Corp in NY, referring to ECB President Mario Draghi.

Economists had expected the index to rise by 0.4 percent compared to the 0.3 percent increase originally reported for the previous month.

Draghi is not expected to give much away at his news conference following the meeting of the bank's 25-member governing council, at which no changes in the stimulus are expected. The dollar sank to a 23-month low of $1.1657 against the Euro Thursday, but has since rebounded to around $1.1625.

'We can always debate the amount, but the fact that the United Kingdom must pay what it owes to the European Union budget is a non-negotiable prerequisite at the start of the talks'. Asset purchases at the current monthly pace of 60 billion euros (69.39 billion US dollars) will continue until the end of December 2017, or beyond if necessary.

With the ECB about to break for summer holidays most economists believe the Central bank will hold steady this week and wait for till their September meeting before announcing roadmap toward winding down its easing measures.

It shot higher against the dollar as well as the pound despite the European Central Bank marking no change to interest rates or wider monetary policy guidance at its latest meeting.

Investors will be wary of a repeat of 2013's "taper tantrum", when the US Federal Reserve's suggestion it could reduce bond purchases sparked a big sell-off in stock markets and fixed income.

"A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up".

Draghi emphasised the weakness of inflation across the Eurozone.

Eurozone government debt to gross domestic product increased slightly in the first quarter, Eurostat reported Thursday.

Emerging market currencies also ran out of steam with South Africa's rand, which steadied after a heavy tumble earlier this month, dropping again and lira down 0.2% amid a war of words between Turkey and Germany over the latter's criticism of activists' arrests. Inflation stood at 1.3 percent in June, higher than expected but still below the bank's target of 2 percent.

United Kingdom government deficit figures are expected to have shown an improvement upon the previous month, with the spending shortfall anticipated to have shrunk by around -£1.7 billion. The primary objective of the bank's stimulus efforts is to get inflation up to its goal of just under 2 percent.

United Kingdom retail sales rose by 0.6 per cent in June, beating economist forecasts, following a fall of 1.2 per cent in May.

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