Euro edges up as all eyes turn to ECB

The euro edged toward a two-week high against the dollar on Thursday, with traders waiting for a European Central Bank policy decision that many doubt will have any significant impact on the euro, even if monetary policy is eased further.

Investors are focusing on whether the ECB will extend its asset-purchase program beyond March 2017, and whether it will tweak the program to ease supply scarcity issues – the pool of bonds it can currently buy, in particular German Bunds, is dwindling because of record-low yields.

Growth and inflation remain weak, despite record-low interest rates and 1.2 trillion euros’ worth of quantitative easing in the past year and a half.

The euro is barely 3 percent weaker against the dollar EUR= than when the bond-purchase program was first announced, in January 2015, and it is up almost 4 percent this year.

Nearly all analysts polled by Reuters expect rates to remain unchanged on Thursday and most predict that they have already bottomed out. But they expect the ECB’s 80 billion-euro monthly asset buys to be extended before the end of the year.

The euro edged up 0.2 percent to $1.1265 EUR=, close to Wednesday’s high of $1.12725.

“If the ECB really wants to weaken the euro, it would have to surprise on the expansionary side and it would probably have to deliver something new – not just an extension of QE or another rate cut even,” said Commerzbank currency strategist Thu Lan Nguyen, in Frankfurt.

“Those are the measures the market already knows, and the market knows they haven’t really helped in the last couple of years to bring inflation back to target.”

The central bank will publish its latest policy decision at 1145 GMT, followed at 1230 GMT by a press conference with ECB chief Mario Draghi.

The yen edged up 0.2 percent against the dollar JPY= to 101.585 yen, clinging to gains of almost 3 percent made in the last four days, after a Bank of Japan deputy governor gave few fresh clues on whether the central bank will expand its monetary stimulus this month.

Analysts said the comments by BOJ Deputy Governor Hiroshi Nakaso seemed similar in tone to remarks by BOJ Governor Haruhiko Kuroda earlier this week, in which Kuroda acknowledged the costs of the BOJ’s aggressive stimulus.

Nakaso said on Thursday the central bank will pursue its massive stimulus program by striking the right balance between its powerful policy effects and potential adverse effects on financial intermediation.

“The main message doesn’t seem all that different … The general tone of weighing the costs and benefits were in Governor Kuroda’s comments as well,” said Shinichiro Kadota, senior FX and yen rates strategist for Barclays in Tokyo.

“As the market reaction suggests, I don’t think it was anything that leads to any big change to the outlook,” he added.

Data showing that China’s imports unexpectedly rose in August for the first time in nearly two years helped lend support to the Australian dollar, which rose half a percent to hit a three-week high of $0.7716 AUD=D3.

Source: Reuters