Euro hits one-week low, sterling falls on BoE minutes
Frankfurt (Oct 22) The euro hit a one-week low against the dollar on Wednesday following a Reuters report that the European Central Bank was considering buying corporate bonds, highlighting the diverging policy outlooks for the euro zone and the United States.
The euro fell to as low as $1.27025 on trading platform EBS in European trade, its lowest level since Thursday. It last stood at $1.2717, little changed on the day and still lethargic after a 0.7 percent fall on Tuesday.
Several sources told Reuters the ECB was considering buying corporate bonds on the secondary market in an effort to boost the flailing euro zone economy, and could begin buying the bonds early next year.
The move, if realized, would expand the private-sector asset-buying program the ECB began on Monday when it started buying covered bonds -- a bid to foster lending to businesses in the hope of spurring growth
"The general takeaway here for a lot of people is that it shows commitment from the ECB trying to find ways to expand its balance sheet," said Paul Robson, a currency strategist at RBS bank in London.
Fresh ECB easing could restore the interest rate gap between Europe and the United States, helping to underpin the dollar.
"For all the slight doubts around the edges of the FOMC (the U.S. Federal Reserve's rate-setting committee) policy bias, people still recognize that the U.S. economy is some years ahead of the ECB, and that on a multi-quarter basis that would suggest that euro/dollar goes lower," Robson said.
The dollar rallied in the three months to September on a view that higher U.S. interest rates down the road would attract funds from the euro zone and Japan, where rates are likely to stay low.
The Fed is expected to wind up its $4 trillion bond-buying programme at its policy meeting next week and Fed officials are also seeking rate hikes, though they are likely to wait several months before starting the tightening cycle.
While some Fed officials earlier this month flagged a possible global slowdown as a risk to interest rate rises, solid earnings from U.S. tech firms, upbeat U.S. housing data and less worrisome economic figures from China on Tuesday all helped to ease that concern.
Improved risk appetite reduced the need for speculators to hold on to the low-yielding yen, which is often used as a safe-haven currency.
The dollar traded at 106.90 yen, flat on the day. The dollar index, which tracks the greenback against a basket of major currencies, was up 0.1 percent at 85.390.
BoE minutes
The Bank of England (BoE) remains split on the future path of interest rates in the U.K., according to the minutes of its latest policy meeting.
Two members of the central bank's rate-setting committee again voted for an interest rate hike in October with many economists anticipating an announcement at some point in 2015.
Martin Weale and Ian McCafferty were the two to vote for the move with the economists widely viewed as the most hawkish of the Monetary Policy Committee (MPC). Both voted in favor of raising rates by 0.25 basis points, as they did back in August, according to minutes.
Sterling fell after the minutes, trading at $1.6024, down 0.5 percent on the day.
U.S. CPI data due at 1230 GMT will be the major focus later in the day. Economists expect annual core CPI inflation to stay flat at 1.7 percent in September but a softer reading could undermine the dollar by adding to speculation that the Fed could wait longer before raising rates.
"The CPI data will be very important. If the market turns risk-off, money will flow to U.S. bonds. A weak figure will surely hurt the dollar," said Koichi Takamatsu, the head of forex trading at Nomura Securities.
Source: CNBC
