Euro rises on bets for ECB tightening

Euro rises on bets for ECB tightening

Euro currency Jun28
Several 500 Euro notes displayed in an arrangement. (MIGUEL MEDINA/AFP)

PARIS: The euro held its gains on Monday (Aug 28) as traders bet that the European Central Bank would start to wind down its crisis-era stimulus programme, while lower expectations for further tightening in the United States weighed on the dollar.

While ECB boss Mario Draghi made no mention of the bank's plans for its bond-buying scheme in a much-anticipated speech on Friday, analysts said his optimism about the eurozone economy was enough to fuel euro buying.

"Mr Draghi provided investors an opportunity to keep adding to long positions," said market strategist Hussein Sayed of online foreign exchange brokerage FXTM.

Janet Yellen's decision not to discuss the Federal Reserve's plans for future interest rate rises was also seen as an indication of the US central bank's reticence to announce any more increases.

The single currency rose as high as US$1.1973, around its highest since January 2015, while it was also around eight-year highs against the pound. The dollar continued to struggle against the yen.

While the ECB is widely expected soon to begin tapering its stimulus, its policymakers are concerned about the impact of a strong currency on the bloc's exports.

"Mario Draghi will be tearing his hair out," said Greg McKenna, chief market strategist at AxiTrader.

"If saying nothing can drive the euro to its highest level since January 2015 then the ECB president and his colleagues will be genuinely worried about the impact an announcement to further reduce its QE programme could have on the single currency."


On equity markets Hong Kong extended its winning run into a fifth straight day, although early gains were pared on profit-taking.

But Hong Kong-listed shares in Wanda Hotel Development Co plunged almost 10 per cent at one point even though the firm denied reports that chairman Wang Jianlin had been barred from leaving China and detained for hours. It trimmed some of the losses but still ended down more than eight percent.

Shanghai added 0.9 per cent but Tokyo ended flat, Sydney shed 0.6 per cent and Seoul was off 0.4 per cent.

Tech giant Samsung sank almost two percent in Seoul, extending Friday's losses after Lee Jae-Yong, de facto head of the world's biggest smartphone maker, was handed a five-year sentence for bribing South Korea's ousted president and other offences.

In European trade, Paris and Frankfurt stocks were weighed down by the strength of the euro. London was closed for a holiday.

Wall Street was mixed approaching midday, with the Dow dipping 0.1 per cent.

Shares in Kite Pharma, which could soon have cell therapies to treat some cancers on the market, soared more than 28 per cent after it agreed to be bought out by Gilead Sciences.

The main US oil contract West Texas Intermediate tumbled after surging at the end of last week, as energy companies were forced to shut down some of their operations because of deadly Hurricane Harvey.

"Oil prices are reacting differently to the considerable disruptions to US oil production and crude oil processing caused by Hurricane Harvey," said analysts at Commerzbank.

While US petrol prices hit a two-year high, crude prices have fallen.

Commerzbank analysts said that while oil production in the region has been shut down, demand for crude has also been lowered as the refineries have been closed and shipping has also been disrupted.

Shares in US oil majors Chevron and ExxonMobil were both down 0.4 per cent approaching midday.

Key figures around 1530 GMT:

Paris - CAC 40: DOWN 0.5 per cent at 5,079.75 points (close)
Frankfurt - DAX 30: DOWN 0.4 per cent at 12,123.47 (close)
EURO STOXX 50: DOWN 0.4 per cent at 3,424.35
London - FTSE 100: Closed for public holiday
New York - Dow: DOWN 0.1 per cent at 21,791.18

Tokyo - Nikkei 225: FLAT at 19,499.90 (close)
Hong Kong - Hang Seng: UP 0.1 per cent at 27,863.29 (close)
Shanghai - Composite: UP 0.9 per cent at 3,362.82 (close)

Euro/dollar: UP at US$1.1968 from US$1.1926 at 2050 GMT
Pound/dollar: UP at US$1.2919 from US$1.2876
Dollar/yen: UP at 109.21 yen from 109.30 yen
Pound/euro: DOWN at 1.0797 euros from 1.0801 euros

Oil - West Texas Intermediate: DOWN US$1.22 at US$46.65 per barrel
Oil - Brent North Sea: DOWN 57 cents at US$51.41 per barrel

Source: AFP/de