News Column

Euro slips on view bank will act

August 28, 2014

LONDON: Euro-zone government bond yields plumbed record lows yesterday and the euro fell to its weakest point in a year against the dollar on expectations the European Central Bank (ECB) will act soon to counter low growth and slowing inflation.

The prospect of further stimulus, through an asset-buying programme known as quantitative easing (QE), also buoyed stock markets. European shares rose again, building on two days of strong gains.

The pan-European FTSEurofirst 300 index inched up 0.1 percent.

Fuelling the speculation of ECB easing, Italian Economy Minister Pier Carlo Padoan said Italy must lower its growth forecast for this year, and German consumer sentiment fell for the first time since early last year.

"When the euro zone's largest economy is falling behind, this is very much increasing the chances of the ECB heading for further monetary measures, above all QE," said DZ Bank strategist Daniel Lenz.

The yield on the benchmark German Bund fell some 4 basis points to a record low of 0.909 percent. Yields fell across the euro zone, with records set in most higher-yielding debt, including Italy and Spain's.

Euro-zone inflation data due tomorrow are likely to show a new low for this cycle of just 0.3 percent and to add to the sense of urgency on policy.

ECB president Mario Draghi's call last week for more action in both monetary and fiscal policy has markets betting further steps may come as soon as the central bank's next policy meeting, on September 4.

But Germany's Finance Minister, Wolfgang Schaeuble, yesterday cooled some of the speculation, saying Draghi's comments had been "over-interpreted".

The euro broke to an 11-month low of $1.3152 in Asian trade yesterday before recovering some ground to $1.3' in European trade, up 0.1 percent on the day.

Some thought the euro had fallen too far.

"Our contention is that Draghi and the ECB are turning more dovish, but nowhere near as dovish as the market has interpreted itů" said Adam Myers, the head of foreign exchange strategy at Credit Agricole in London. "And because of that we think the euro will bounce - it's gone too far." - Reuters

Cape Argus

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Source: Cape Argus (South Africa)

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