Euro Halts Gain Versus Dollar as ECB Official Says QE Possible

Frankfurt (Nov 26)  The euro halted a two-day gain after European Central Bank Vice President Vitor Constancio said policy makers will consider buying government debt if current stimulus proves insufficient.

Constancio’s comments may signal that the ECB is preparing to begin a program of quantitative easing, a move that tends to weaken a currency. The Australian dollar weakened against all 16 of its major peers after central bank Deputy Governor Philip Lowe said yesterday the currency will probably depreciate further. An index of dollar strength was little changed before a report economists said will show orders for durable goods slid for a third month.

“The comments from Constancio are likely to add to market expectations that the ECB could take further action in the coming months,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “This will increase the focus on the inflation data from Europe. Soft consumer-price readings will put the euro under pressure.”

The euro fell 0.2 percent to $1.2453 at 10:05 a.m. London time after rising 0.2 percent to $1.2495 earlier. It declined 0.3 percent to 146.77 yen. The Aussie dropped 0.5 percent to 84.88 U.S. cents for a third day of losses, the longest streak since Sept. 29.

The ECB may “have to consider buying other assets, including sovereign bonds in the secondary market, the bulkier and more liquid market of securities available,” Constancio said in a speech in London today. “It would be a pure monetary-policy decision, buying accordingly to our capital key, within our mandate and our legal competence.”

The yen dropped 6.9 percent in the past month, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The Aussie fell 1.5 percent, while the dollar, the biggest gainer, strengthened 2.4 percent.

Source: Bloomberg