Euro holds above $1.16 into Federal Reserve rates announcement. European stock benchmarks recover as financial stocks look oversold US central bank expected to sound dovish tone as it leaves policy on hold.
The euro is up 0.1 per cent at $1.1648, while the dollar index is flat at 93.99, its lowest since June 2016.
The wider Euro Stoxx 600 is up 0.7 per cent, with financial stocks setting the pace. the Euro Stoxx banking index is up 1.8 per cent, after last week’s fall of 3.2 per cent leaves it looking oversold.
London’s FTSE 100 is outperforming — up 0.9 per cent, helped by a strong showing in its heavily-weighted mining sector as well as its banks.
“Fundamentally, the euro is still undervalued against the dollar and we still see the case for a higher euro six to 12 months ahead,” says Mikael Olai Milhøj, senior analyst at Danske Bank.
“We do not think there will be major changes to the Federal Reserve’s statement, although it is likely the probability is skewed towards a slightly more dovish tone given inflation has now been weaker than expected for four consecutive months.”
With the Federal Reserve due to start its two-day rate-setting meeting there is little respite for the dollar, while the euro continues to hold around the highs above $1.16 it has claimed this week. The rally takes it back up to levels last seen against the dollar in August 2015.
The re-evaluation of the shared currency has been felt by shares in European exporters, although there is respite for the region’s stock indices on Tuesday, as financial stocks rally. Germany’s export-heavy Xetra Dax 30 is up 0.6 per cent, trimming its recent losses. It started to weaken in tandem with the euro’s ascent in late June.
In Tokyo, the Topix is down 0.1 per cent as industrial stocks offset wider gains. The Shanghai Composite is off 0.3 per cent and the Hang Seng in Hong Kong is 0.1 per cent lower.
The yen is hovering near its strongest level in more than a month as the dollar’s global wilt continues. Japan’s currency firmed slightly in early afternoon trading to ¥111, having touching its highest level since mid-June on Monday.
The Australian dollar continued to hover just below the $0.80 mark at $0.7940, where it has been for about a week.
