The euro hovered near a 14-month low today and headed for its longest weekly losing streak against the dollar in its history after the European Central Bank’s surprise move to cut rates and embarking on a trillion-euro asset-buying binge.
The euro was almost flat at $1.2950 after plummeting 1.6 per cent yesterday, its steepest fall in almost three years, despite upbeat data from Germany, showing industrial output in the euro zone’s biggest economy increased by the most in over two years in July. The common currency stayed firmly below the significant $1.30 level, leaving the euro well on track for eight straight week of losses - the first time that has happened since its introduction in January 1999.
“If the primary reason for the ECB deposit rate cut yesterday was to weaken the euro, it has been successful,” said Chris Turner, a strategist with Dutch bank ING in London.
The impact of the ECB’s bold moves was also reflected in the bond market. The rate cut sent short-term bond yields into negative territory in Germany, France, the Netherlands and Austria, giving investors an overwhelming incentive to sell euros for higher-yielding assets elsewhere.
Spanish and Italian 10-year yields fell 5 to 7 basis points to 2.11 per cent and 2.31 per cent respectively. Italy’s hit a new record low of 2.28 per cent earlier in the day. “The main beneficiaries are the peripheral markets and I still think there is scope for spreads to narrow over Bunds, particularly in Spain,” said Nick Stamenkovic, bond strategist at RIA Capital Markets.
“People are still searching for yield. While the ECB underpins the short end of the curve, investors are going to look to extend duration.”
European shares, however, retreated from multi-year highs scaled after the ECB rate cut, with investors taking some profits ahead of market-sensitive US non-farm payrolls data.
The FTSEurofirst 300 index of top European shares was down 0.6 percent, retreating from a six- year high, but still set to record its fourth consecutive weekly gain.
Markets were also eyeing whether or not the United States and Europe pushed ahead with plans for new sanctions on Russia at a NATO meeting in Wales. Ukrainian President Petro Poroshenko and the main pro-Russian rebel leader said they would both order ceasefires on Friday, provided that an agreement is signed on a new peace plan to end the five-month war in Ukraine’s east.
Reuters
