The European Single Currency, euro, on Thursday, September 7, surged and stocks inched higher , as markets waited to hear just how close the European Central Bank is to scaling back its more than 2 trillion euro ($2.75 trillion) stimulus program.
The euro’s sharp rise this year has started to cause some discomfort in part of the euro zone. It drifted higher against a broad swathe of currencies in early trading. [FRX/]
A fourth day of gains took it back above $1.1950 against the dollar EUR= while a broad tick higher in European bond yields pushed 10-year German debt up 2 basis point to 0.36 percent and Spanish and Italian paper to 1.45 and 2 percent respectively. [GVD/EUR]
“Most people are on the same page that the ECB will do something to reduce their accommodation (soon),” said JP Morgan Asset Management Strategist Nandini Ramakrishnan.
The euro wobbled slightly on the lack of signals that the central bank may be gearing up to slow its buying, but like Europe’s main stock exchanges, it held on to most of the morning gains that had taken it back above $1.1975.
Canada’s dollar CAD=D4 held its gains, after a surprise interest rate rise on Wednesday reminded everyone that G7 monetary settings will not remain super-easy forever.
It also showed the very clear implication of policy tightening right now – the Canadian dollar surged more than 2 percent at one point to its highest levels in two years.
And analysts say that is the ECB’s main conundrum.
All the economic activity signals suggest it should take its foot off the gas, but the 13 percent surge of the euro already this year is playing havoc with its sub-target inflation outlook and it will want to step lightly for fear of compounding the problem with another exchange rate jump.
The Swedish crown, SEK= which is the only Northern European currency to have risen against the euro this year, fell after its central bank said it was introducing a bigger buffer on its inflation target. That should give it more leeway on policy moves.
