Euro pulls back as investors ready for ECB meeting

Frankfurt (Dec 3)  The euro was a tad lower against the dollar and the yen during Asian trade Thursday, as investors await potentially market-moving extra monetary easing decisions from the European Central Bank’s policy-setting meeting later in the day.

The greenback was higher against the common currency EURUSD, +0.4427% which declined to $1.0588 from $1.0614 late Wednesday in New York. The bloc’s single currency EURJPY, +0.53%  was at ¥130.67 from ¥130.80 late Wednesday.

Investors were largely sitting on the sidelines as they expect the ECB will unveil more stimulus for the beleaguered eurozone. Read: Goldman says it isn’t too late to bet against the euro

“Investors are waiting for the ECB action,” said Shusuke Yamada, chief FX strategist at Merrill Lynch Japan. “We don’t know (the currency market reaction) until the decision comes out,” said Mr. Yamada. But “I think surprise is needed to bring down the euro (immediately) below $1.05,” he said.

The ECB is expected to announce an expansion of the bank’s EUR60 billion a month quantitative easing, or bond buying, program. It is also expected to make an additional 0.1 to 0.2 percentage point cut in the deposit rate, leaving it at minus 0.4%.

“Some in the currency market expect the ECB’s easing steps are fully factored in, so that they expect the euro would temporarily bounce back after the meeting,” said Osamu Takashima, chief FX strategist at Citigroup Global Markets Japan. But he said currency option-related positions suggested some investors remain well prepared for a euro rebound, making the euro more likely to weaken following any ECB steps to ease.

In other currency pairs, the dollar USDJPY, +0.04%  rose against the yen to ¥123.43 from ¥123.22 late Wednesday.

The U.S. currency gained traction overnight as investors have increased their bets that the Federal Reserve would soon start raising rates following hawkish remarks from Federal Reserve Chairwoman Janet Yellen, who said in a speech Wednesday that she is confident over the U.S. growth outlook.

The WSJ Dollar Index BUXX, +0.08% a measure of the dollar against a basket of major currencies, was up 0.12% at 90.79 after touching 91.00 overnight, its highest level since December 2002.

Source: MarketWatch