BLBG: Euro Holds Close to Three-Week Low as Draghi Stands Pat on QE
ECB to wait until economic impact of Brexit is clearer: Draghi
“Nothing major has been announced at all”: SocGen’s Tan
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The euro stayed close to a three-week low after European Central Bank President Mario Draghi refrained from announcing any expansion to its asset-purchase program and said officials will wait until the economic impact from Brexit is clearer.
The single currency was mixed versus its 16 major counterparts, holding near its weakest level versus the greenback since late June. Even as economic risks are tilted to the downside, euro-area markets have weathered recent volatility well and financing conditions remain “highly supportive,” Draghi said at a press conference Thursday in Frankfurt. The central bank left the deposit rate at minus 0.4 percent as predicted by all 48 economists in a Bloomberg survey. The refinancing rate remained at zero.
“For the euro itself, this is a neutral event,” said Peter Frank, head of Group-of-10 currency strategy in London at Banco Bilbao Vizcaya Argentaria SA. “There may have been slight net-selling pressure on the euro into the meeting, but given such a lack of fresh detail this mild net selling should be reversed.”
The euro was at $1.1014 as of 2:30 p.m. London time. Europe’s common currency slid to $1.0982 on Wednesday, the weakest level since June 27. It was 0.5 percent weaker at 117.20 yen.
In the build up to the policy decision, speculation had grown that the ECB’s 80 billion-euro a month quantitative-easing program would be fine-tuned. That came after the U.K.’s June 23 referendum to leave the European Union increased demand for haven assets, driving down bond yields to records and helping shrink the supply of German securities eligible for QE purchases.
Europe’s common currency declined 3.3 percent from the U.K. referendum vote through Wednesday, amid speculation that Draghi and his colleagues in the Governing Council would ease monetary policy further as they struggle to move inflation toward 2 percent. Futures prices as of Wednesday signaled the chances were 50 percent that the ECB would cut interest rates by its October meeting.
“Basically nothing major has been announced at all,” while investors may have envisioned some kind of “tinkering” with the asset-purchase program, said Alvin T. Tan, a London-based foreign-exchange strategist at Societe Generale SA. “The market was thinking they might increase the pool of assets, for example by tweaking some of the limits they have.”
