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Sep 3, 2020
News | Business | The Euro: Euro weakens as ECB policymakers grow wary of recent rally
The euro weakened after European Central Bank policymakers expressed concern over its recent appreciation.
The single currency fell 0.3 per cent to $1.1814 on Thursday, following a Financial Times report
that several members of the ECB’s governing council had expressed
concerns over its rise against the dollar ahead of a monetary policy
meeting next week.
One council member said the euro’s appreciation
in recent weeks was “worrisome when you have weak demand, especially as
the euro area is the most open economy in the world and unusually
dependent on global demand”.
“Overall the comments suggest that an
immediate policy response from the ECB to help weaken the euro appears
unlikely,” said Lee Hardman, a currency analyst at MUFG. “They will rely
more on jawboning to dampen euro strength for now.”
He added: “However, if the euro continues to strengthen it will increase pressure on the ECB to deliver more stimulus.”
The
currency depreciation boosted European stocks. The continent-wide Stoxx
600 rose 1 per cent in morning trading on Thursday. A weaker euro helps
the bloc’s stocks appear cheaper to outside investors and supports
European exports.
France’s CAC 40 rallied 1.8 per cent on the day that Paris launches its €100bn fiscal spending plan.
London’s
FTSE 100 added 0.8 per cent, with buyout specialists Melrose Industries
rising 13 per cent after it said recent trading had been at the “higher
end of the board’s expectations”, especially in the auto sector. Still,
the group posted a £685m half-year loss.
“The market feels
tinder-dry for some good news on those [non-tech] businesses,” said Alan
Custis, head of UK equities at Lazard Asset Management.
Futures
tipped US stocks to fall 0.3 per cent when trading begins on Wall
Street later in the day. The S&P 500 closed 1.5 per cent up at
another record on Wednesday following reports that the White House and
Democrats in Congress were discussing an extension of support for
unemployed Americans.
Sophie Huynh, cross asset strategist at
Société Générale, said that concerns about the upcoming US presidential
election were blocking investors from piling into old economy stocks
such as energy, consumer products and industrials, even as US
coronavirus cases stabilise and an economic recovery takes hold.
“Despite
the fact that the cyclical rotation has not happened, you could still
have a melt up of US equities,” she said, adding that the S&P 500
could rise another 3 per cent to reach 3,700 due to “the Goldilocks
scenario” of low interest rates along with monetary and fiscal stimulus.
The
euro’s decline on Thursday has helped to stem the downward trend of the
dollar, which has dropped 8 per cent in just over three months. The US
currency added 0.3 per cent on Thursday against a basket of six major
currencies.
The stronger dollar weighed on commodities. Brent
crude, the international oil price benchmark, fell 1.9 per cent to less
than $44 a barrel, while gold was 0.6 per cent lower at $1,931 per troy
ounce.
In the Asia-Pacific region, stocks were mixed after data
indicated that activity in China’s services sector increased again in
August.
China’s CSI 300 and Hong Kong’s Hang Seng index trailed
the rest of the region, falling about 0.5 per cent. Japan’s Topix index
climbed 0.5 per cent, while South Korea’s Kospi was up 1.3 per cent.
The
Caixin services purchasing managers’ index for China stabilised at 54
for August, well above the 50-point line separating growth from
contraction. Employment in China’s services sector, which accounts for
the majority of its economic output, rose for the first time since
January.
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