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The euro moved higher on Thursday ahead of an expected slowing in the European Central Bank’s bond-buying programme, but the dollar clung onto recent gains as fears about the global economy drove traders towards safer currencies. The euro advanced 0.1 percent to $1.1825, following a three-day decline from a two-month high of $1.1909 on Friday.
After three days of gains, the dollar index was modestly down at 92.644. When the ECB’s policy meeting takes place on Thursday, it’s widely believed that it will announce a reduction in the pace of its asset purchases, marking a symbolic step towards unwinding its emergency economic help put in place during the pandemic. Bond purchases under the pandemic emergency purchase programme (PEPP) might be reduced to as little as 60 billion euros ($71 billion) a month from the current 80 billion euros, before a further decline occurs in the new year and the program’s termination in March, according to analysts.
After PEPP expires, however, the ECB is expected to signal a lot of support for years to come. “As for the euro, it could gain on a tapering decision, but whether the rally will be strong and long-lasting will depend on any accompanying decision on other schemes, and any remarks on future plans,” said Charalambos Pissouros, head of research at JFD Group.
According to him, the euro would fall if officials delayed taking action to limit stimulus. Global economic concerns and fears that risk assets have been rallying too hard in recent months weighed on stocks. Switzerland’s safe haven currency benefited from the cautious mindset. When it comes to
currency exchange, the dollar fell by 0.3% to 0.9195 Swiss Frank while the euro lost 0.1% to 1.0885 Swiss Francs. The dollar lost 0.2 percent to 129.99 yen, while the yen gained 0.2 percent to 129.99 yen. As of Monday, the pound was trading at $1.3777 after falling earlier in the week.C$1.2721 was the Canadian dollar’s exchange rate on Thursday, down 0.2 percent from Wednesday’s low of C$1.2721.
After dropping its benchmark rate to a historic low of 0.25 percent, the Bank of Canada kept its present quantitative easing programme in place on Wednesday. In offshore trade, the Chinese yuan was unchanged at 6.4587 per dollar, despite price data showing a worsening business environment for Chinese firms. A 13-year high in China’s factory gate inflation was recorded in August, despite Beijing’s efforts to temper it down, while consumer inflation surprisingly declined in a sign of weaker spending.
Markets in transition Overall, foreign exchange rates were lower due to a sell-off of risky currencies by investors. “One big difference versus Q4 or Q1 is that the range of economic and inflation consequences is much wider given the uncertainties on how COVID and inflation evolve,” said Steve Englander, head of global FX Research at Standard Chartered (OTC:SCBFF) Bank’s New York Branch.
“Investors may be quick to bail out of risk, if it looks like one of these tail risks is becoming more prominent,” he added.