Euro edges 0.2% higher ahead of ECB meeting

London

THE euro edged higher on Thursday against a weaker US dollar, but gains were capped by the possibility that the European Central Bank (ECB) could flag more policy easing if it deemed economic recovery and inflation are at risk from currency appreciation.

Most other currencies too ground higher as the US dollar resumed its downtrend following a US technology shares bounce that suggested improving risk appetite. The greenback had hit a one-month high against a currency basket on fears world markets were headed for another downturn.

Attention, however, centred on the euro and the ECB's governing council meeting later on Thursday.

The bank is all but certain to keep policy unchanged but President Christine Lagarde's comments on the euro's recent rise to two-year highs will be closely monitored.

It has risen almost 6 per cent against the US dollar from June lows, while euro area consumer prices turned lower in August for the first time since 2016.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The euro rose 0.2 per cent to US$1.1829. It had received a boost on Wednesday after Bloomberg News reported that ECB officials are growing more confident in the bloc's economic outlook.

Many reckon also the ECB will struggle to tamp down euro strength, given greater investor confidence in the bloc after the creation of a joint recovery fund and a robust response to the pandemic.

Moreover, euro interbank rates have hit record lows this week, showing financial system liquidity remains abundant.

Petr Krpata at ING Bank said the Bloomberg report suggested the ECB sees less need for imminent action, and predicted Ms Lagarde would restrict herself to saying the exchange rate was being closely monitored.

Elsewhere, US dollar weakness - the index slipped 0.2 per cent on the day - allowed sterling to stabilise above US$1.30. It dipped to a six-week low of US$1.2839 on Wednesday after Britain unveiled draft legislation which raises risks of it exiting the European Union single market with no trade agreements in place.

The pound slipped to 90.9 pence per euro however, close to a six-week low.

The Australian dollar fell to US$0.7263 amid concerns abound worsening diplomatic ties with China over the treatment of the two countries' journalists. Investors are also monitoring an outbreak of coronavirus infections in the state of Victoria. REUTERS