Euro Extends Decline As ECB Minutes Show Concern Over Currency Appreciation
August 17 2017 - 5:28AM
RTTF2
The euro continued to be lower against its key counterparts in
the European session on Thursday, as minutes from the latest
monetary policy meeting of the European Central Bank showed that
policy makers were worried about the recent appreciation of the
domestic currency, cautioning that "favourable financing conditions
could not be taken for granted" and hinge on a continued high
degree of monetary policy accommodation to a certain extent. The
minutes from the bank's July 19-20 policy session showed that
policymakers at the European Central Bank expressed concerns about
a possible overshooting in the repricing by financial markets,
notably the foreign exchange markets, in future. "The still
favorable financing conditions could not be taken for granted and
relied to a considerable extent on a continued high degree of
monetary policy accommodation." Although policymakers suggested
making "incremental" adjustment to their forward guidance, they
dismissed the idea as it could be better "to avoid sending signals
that could be prone to over-interpretation and might prove
premature." Even as measures of underlying inflation shows some
tentative signs of a pick-up, it still needed to show conclusive
evidence of a sustained upward trend. Hence, the Governing Council
reiterated, "A very substantial degree of monetary accommodation
was still needed for underlying inflation pressures to build up
gradually and support headline inflation developments in the medium
term." Final data from Eurostat showed that Eurozone inflation
remained stable as initially estimated in July.
Inflation in the currency bloc held steady at 1.3 percent in
July.
Separate data from the same agency showed that the euro area
trade surplus increased to a 6-month high in June as the pace of
decrease in imports was bigger than the fall in exports.
The trade surplus rose to a seasonally adjusted EUR 22.3 billion
from EUR 19 billion in May. This was the highest surplus seen so
far this year.
The euro showed mixed performance in the Asian session. While
the euro held steady against the pound and the franc, it rose
against the greenback. Against the yen, the currency weakened.
The single currency weakened to a 2-day low of 0.9063 against
the pound, following an advance to 0.9136 at 2:45 am ET. The euro
is likely to find support around the 0.90 area. According to the
data from the Office for National Statistics, UK retail sales
increased more than expected in July on food store sales.
Retail sales volume grew 0.3 percent month-on-month in July, the
same rate as logged in June. Sales were expected to rise at a
slower pace of 0.2 percent.
Having climbed to a 2-day high of 1.1790 against the greenback
at 10:00 pm ET, the euro reversed direction and fell to a 3-week
low of 1.1663. Continuation of the euro's downtrend may see it
challenging support around the 1.15 region. The euro slid to a
6-day low of 1.1304 against the Swiss franc, compared to 1.1364 hit
late New York Wednesday. The euro is seen finding support around
the 1.12 mark. The 19-nation currency that finished Wednesday's
deals at 129.62 against the yen dipped to a 6-day low of 128.55.
The next possible support for the euro-yen pair is seen around the
127.00 region. Data from the Ministry of Finance showed that Japan
logged a merchandise trade surplus of 418.8 billion yen in July.
That topped forecasts for a surplus of 327.1 billion yen but was
down from 439.8 billion yen in June.
The euro dropped to a weekly low of 1.5996 versus the kiwi, more
than 2-week lows of 1.4730 against the loonie and 1.4733 against
the aussie, off its early highs of 1.6116, 1.4873 and 1.4865,
respectively. Further weakness may see the euro challenging support
around 1.59 against the kiwi, 1.47 against the loonie and 1.46
against the aussie. Looking ahead, U.S.leading indicators for July
are set for release shortly.
In today's events, Dallas Fed President Robert Kaplan speaks at
the "Dialogue with the Dallas Fed" event hosted by the Lubbock
Chamber of Commerce in Texas at 1:00 pm ET.
Minneapolis Fed President Neel Kashkari will speak at an event
hosted by the Edina Rotary Club in Minnesota at 1:45 pm ET.
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