LDN - Business

Euro steadies at one-week highs as ECB stands pat on policy

[December 14, 2017]

By Saikat Chatterjee

LONDON (Reuters) - The euro consolidated gains at a one-week high on Thursday after the European Central Bank kept its ultra-easy policy stance unchanged, an outcome that was widely expected by financial markets.

"The ECB took some quite big steps a few weeks ago and nothing new was expected today," said Thu Lan Nguyen, an analyst at Commerzbank in Frankfurt.

"If there was anything that markets were looking out for was a possible change in timing of the first rate hike but we are quite a long way from that."

Six weeks after agreeing to halve asset buys from January, the bank reiterated its commitment to continue bond purchases at least until the end of September, and to keep reinvesting cash from maturing debt until much later to support a rebound in growth and inflation.

Against the dollar <EUR=EBS>, the euro was flat on the day at $1.18275. It has risen more than 2.5 percent over the last month and was trading at a one-week high.

The euro has been the standout performer among the major G10 currencies this year, gaining than 12.5 percent against the dollar so far this year as growth expectations have overtaken other drivers for the currency such as interest rate differentials and capital flows.

The dollar held at more than one-week lows on Thursday after the U.S. central bank kept its economic forecasts unchanged with investors expecting more losses if the European Central Bank outlines a more optimistic outlook on the economy.

Though the Fed delivered a quarter percentage point rate hike as widely expected, some analysts expected policy-makers to sound a more upbeat note on the economy thanks to a U.S. tax bill that may become reality over the next few weeks.

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U.S. one hundred dollar bills are seen in this picture illustration, August 2, 2013. REUTERS/Kim Hong-Ji/Illustration/File Photo

The Fed projected three more hikes in both 2018 and 2019, unchanged from the last round of forecasts in September and said the tax overhaul would boost the economy next year but leave no lasting impact, with the long-run potential growth rate likely stalled at 1.8 percent.

The dollar plunged 0.6 percent against a trade-weighted basket of currencies <.DXY> after the decision on Wednesday, erasing a large chunk of its near 2 percent rise in the last three weeks. On Thursday, it was broadly flat and nursing losses at 93.46.

Against the yen <JPY=EBS>, the dollar inched up 0.1 percent to 112.69 yen, after sliding 0.9 percent on Wednesday and having retreated from Tuesday's four-week high of 113.75 yen.

Sterling trimmed earlier gains and was broadly flat on the day after the Bank of England stuck to its view that interest rates were likely to rise gradually.

The pound <GBP=D3> was flat at $1.3425 after the BoE said last week's breakthrough in Brexit talks has reduced the risk of Britain leaving the European Union in a disorderly way and may boost economic confidence, but still said only "modest increases in (the) Bank Rate would be warranted over the next few years.

(Reporting by Saikat Chatterjee; Editing by Angus MacSwan)

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