Euro Rises to 5-Week High as ECB Refrains From Further Stimulus
December 5, 2013 (Bloomberg) -- The euro rose to a five-week high against the dollar as European Central Bank President Mario Draghi refrained from introducing further monetary stimulus.
The 17-nation currency appreciated against all of its 16 major counterparts as the ECB kept its interest-rate targets unchanged and gave no indication that policy makers will introduce a negative deposit rate that would drive investors into riskier assets. The pound weakened for a third day versus the euro as the Bank of England kept interest rates at a record low. The U.S. economy added 185,000 jobs last month, a Bloomberg survey shows before the Labor Department report tomorrow.
“There’s nothing that’s happened today to give the impression euro-dollar is going to go down,” Kit Juckes, global strategist at Societe Generale SA, said in an interview on Bloomberg Television with Guy Johnson. “All that can happen is a really big payroll number tomorrow or something like that from the states. That’s all that could change it at all.”
The euro advanced 0.5 percent to $1.3667 as of 1:46 p.m. in New York after rising to $1.3674, the strongest level since Oct. 31. The single currency dropped 0.1 percent to 138.98 yen after weakening as much as 0.5 percent. The dollar fell 0.6 percent to 101.70 yen.
India’s rupee rose to the highest level in a month as an exit poll showed the nation’s main opposition party was poised to win four of five state elections before a national vote next year, fueling speculation of policy reforms. The currency rose 0.5 percent to 61.7650 per dollar.
Brazil’s central bank said its current pace of interest rate increases remains appropriate to rein in consumer prices, repeating language it used to justify previous half-percentage-point increases. The real gained 1.2 percent to 2.3605 per dollar and has weakened 13 percent this year.
JPMorgan Chase & Co.’s Global FX Volatility Index reached 8.81 percent, the highest level since Oct. 10. The gauge has climbed from as low as 7.55 percent on Oct. 28.
Draghi said at a press conference that while the ECB was “technically ready” to cut its deposit rate below zero, the Governing Council only discussed a negative rate “briefly” at its meeting. The deposit rate is what the ECB charges banks for parking excess cash at the central bank. It is set at zero.
The ECB predicted the economy will contract 0.4 percent this year, before expanding 1.1 percent in 2014 and 1.5 percent in 2015. Inflation will average 1.4 percent this year, 1.1 percent in 2014 and 1.3 percent in 2015, the forecasts say.
“Draghi said risk to inflation outlook is broadly balanced,” said Geoffrey Yu, a senior currency strategist at UBS AG in London. “This means they don’t need to react to it. The euro moved higher as a result.”
The euro has gained 7.8 percent this year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 3.6 percent, while the yen tumbled 13.2 percent.
The pound weakened from almost a two-year high against the dollar after the Bank of England held its benchmark interest rate at 0.5 percent.
Chancellor of the Exchequer George Osborne in his Autumn Statement said U.K. borrowing requirements will decline in the coming years, citing forecasts for stronger growth.
“The BOE was no surprise but the minutes will be interesting,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. “As for the Autumn Statement, it is full of good news, but largely expected in the market. Pound-dollar is coming out the statement the same as it went it.”
Sterling fell 0.3 percent to $1.6333 after climbing to $1.6443 on Dec. 2, the highest since August 2011.
Norway’s krone slipped to the lowest level in four years versus the euro after the central bank kept interest rates unchanged and said it will delay plans to raise borrowing costs until the summer of 2015, a year later than previously signaled.
The krone fell 0.4 percent to 8.4009 per euro after sliding to the weakest since December 2009.
The U.S. economy expanded in the third quarter at a faster pace than initially reported, led by the biggest increase in inventories since early 1998. Gross domestic product climbed at a 3.6 percent annualized rate, up from an initial estimate of 2.8 percent and the strongest since the first quarter of 2012, Commerce department figures showed in Washington.
Another report showed first-time claims for jobless benefits dropped by 23,000 to 298,000 last week, according to the Labor Department. The unemployment rate fell to 7.2 percent last month, matching the September rate that was the lowest since 2008, according to a Bloomberg News survey of economists.
“The greenback’s performance has been relatively subdued considering mildly encouraging U.S. figures,” Nick Bennenbroek, the head of currency strategy at Wells Fargo & Co. in New York, wrote in an e-mail. “We expect that market participants are viewing tomorrow’s U.S. jobs report and its implication for Federal Reserve policy as more consequential.”
The U.S. central bank buys $85 billion of bonds a month to push down borrowing costs and spur economic growth. Minutes of the central bank’s latest meeting released Nov. 20 showed policy makers expected economic data to illustrate improvement in the job market and “warrant trimming the pace of purchases in coming months.” Policy makers next meet Dec. 17-18.