Euro Pinned Down Near Three-Month Lows Before ECB Meeting

LONDON (Reuters) -
The head quarter of the European Central Bank (ECB) is illuminated with a giant euro sign at the start of the "Luminale, light and building" event in Frankfurt, Germany, March 12, 2016. REUTERS/Kai Pfaffenbach
The head quarter of the European Central Bank (ECB) is illuminated with a giant euro sign in Frankfurt, Germany. (Reuters/Kai Pfaffenbach)

The euro was trading near a three-month low against the dollar before an European Central Bank meeting on Thursday, with the focus on whether President Mario Draghi will indicate that the bank is poised to taper its bond purchase program.

The euro eased 0.1 percent to $1.0962, having fallen to a three-month low of $1.0952 early in the London session. A drop below that low, struck on July 25, would take the euro to its lowest point since the Brexit referendum results on June 24.

The ECB is not expected to make any changes to its asset purchase program until December, but investors want more clarity from Draghi about recent speculation that the bank could start tapering down its bond purchases.

Any indications that the governing council discussed tapering could see front-end yields on euro zone government bonds edge up, pushing up the euro with it.

There is also a chance Draghi may sound dovish too, with the ECB having downgraded growth forecasts only last month.

“Euro is a bit softer before the meeting and I will not be surprised to see some bounce later on,” said Niels Christensen, a currency strategist at Nordea. He expects Draghi to reiterate his commitment to looser monetary policy and quash talk of any tapering of the asset purchase program.

Part of the euro’s weakness was also related to a renewed bid for the dollar after the third and final debate in the election campaign between Democrat Hillary Clinton and Republican Donald Trump.

Since most recent polls have favored Clinton, the market’s focus had been on whether Trump would be able to use the debate to regain momentum in the final weeks ahead of the election.

“There didn’t seem to be anything in the latest debate that put Clinton in a tight spot,” said Kota Hirayama, senior economist for SMBC Nikko Securities in Tokyo.

A CNN snap poll of debate watchers found Clinton won with 52 percent, and Trump trailed with 39 percent, the network said.

The Mexican peso, which is closely watched because Mexico is seen as most vulnerable to Trump’s economic policy proposals, rose to 18.4555 to the dollar at one point, its highest level since Sept. 8. It was last trading 0.2 percent lower.

The dollar was also helped by bullish comments from one of the most influential officials on the Federal Reserve. New York Fed President William Dudley said the Fed will likely raise interest rates later this year if the economy remains on track.

Dudley, a permanent voter on policy and a close ally of Fed Chair Janet Yellen, said a quarter-point hike this year “is not really that big a deal” given the economy is “reasonably close” to the Fed’s goals of 2 percent inflation and maximum sustainable employment.