LONDON: The euro gained on Friday and is set for its biggest weekly rise in three weeks after the European Central Bank reaffirmed its dovish stance in the minutes of its policy meeting while the dollar struggled as US coronavirus infections surged.
Facing the biggest economic contraction in generations, ECB policymakers at their June 4 meeting extended emergency bond purchases until mid-2021 and increased them by €600 bil (RM2.874 tril) to €1.35 tril to help member states finance their pandemic response. The policymakers had debated increases of €500 bil to €750 bil.
The cautious comments suggested an extension of the bond- purchase plans and reinvestment programmes is likely by the end of the year, which may benefit the euro.
“What we have seen in the last 4-6 weeks has been a big turnaround on the euro’s sentiment and this will be very supportive for the currency depending on the progress on the EU recovery fund,” said Chris Turner, ING’s global head of markets. He expects the euro to strengthen to US$1.20 by the end of the year.
Against the dollar, the euro rose 0.1% to US$1.12395 and is on track for its biggest weekly rise since the first week of June.
Bank of America Merrill Lynch’s trading platforms and broader positioning surveys indicate currency markets are long euro/dollar, though positioning is not stretched.
The euro’s gains and a surge of coronavirus infections in the United States meant the dollar struggled to gain traction.
The governor of Texas temporarily halted the state’s reopening on Thursday as Covid-19 infections and hospitalisations rose. Texas, at the forefront of efforts to reopen after shutting down, has seen one of the biggest jumps in new cases.
Against a basket of other currencies, the dollar edged 0.1% lower to 97.251.
The New Zealand dollar led gains as encouraging recent data prompted investors to add risk positions, despite an increase in infection rates.
“Stock prices remained supported but I doubt they could retain the current high valuations when more earnings results will come in next month,” said Tatsuya Chiba, manager of forex at Mitsubishi Trust Bank. “At this point, risk currencies could slip again versus the yen.”
Elsewhere, the Australian dollar fetched US$0.6888, stuck in its US$0.68-0.70 range in the past couple of weeks. – June 26, 2020, Reuters
