Euro Plummets After ECB Meeting

The euro slipped after European Central Bank decided to prolong its bond-buying program.

The euro plummeted on Friday to its three-month low, while the dollar soared high, after the European Central Bank announced that it would extend its bond-buying scheme and lessen the chances of interest rate hikes in 2018.

The euro plummeted 0.15 percent at $1.1633 after it touched $1.1624, which was its lowest level since July 26. It fell 1.3 percent for the week.

Meanwhile, the dollar index, a measure that tracks the greenback against a basket of six other major currencies, gained a 0.2-percent increase to 94.800, trading at its highest over a three-month period, staying on track for its weekly gain of 1.1 percent.

Against the yen, the dollar swelled 0.15 percent to 114.155 yen, staying with reach of this week’s three-month high of 114.245 that was smashed on Wednesday. It climbed 0.5 percent for the week, although the dollar’s jump against the yen was limited due to the yen’s rally against the euro.

The euro fished 132.840 yen following its 132.590-low, which was its weakest in eight days. The euro dropped 1.2 percent against the yen in just one night.

Moreover, the yen remained practically unmoved by Friday’s data, which revealed core consumers price gained 0.7 percent in September from last year, marking a 9^th straight rising month.

The pound dipped 0.3 percent to $1.3124, while the investors are awaiting the Bank of England’s decision on whether it will continue its first interest rate increase in more than 10 years.

The ECB’s Decision

ECB Chief Mario Draghi said that the monetary stimulus was still necessary.

The ECB said that its bond buying scheme would be extended by nine months to September next year, adding that its door is open for the continuation of its program after that.

The chief of the ECB, Mario Draghi, said that “an ample degree of monetary stimulus remains necessary,” while they are waiting for inflation to show signs of stable and sustained upward trajectory.

“The concept of tapering would be removal of accommodation, so it wasn’t exactly what the market was expecting – it was a dovish form of tapering, as there was both an extension and a reduction,” said Bill Northey, chief investment officer at the private client group of US Bank in Montana.

Northey also added that the ECB’s extension pushes “any potential hike to 2019.”

Another factor that underpinned the dollar was the vote made by the US House of Representatives on Thursday that cleared a procedural path for a Republican tax bill.

“We did see some additional progress towards tax cuts. As we move into 2018, the likelihood that something will pass increases,” said Northey.

Goldprices bounced off their recent lows before the unveiling of the ECB’s decision.

Fed Reserve Chief Search

Investors are awaiting Trump's announcement of the Next Federal Reserve's chair.

The ECB’s decision comes in bright contrast against the Federal Reserve’s intention to raise rates in December as it aims to normalize its monetary policy.

“The ECB’s decision appears like a limited deal, in which it restricted itself to curbing the amount of its bond purchases,” said Koji Fukaya, who is the president at FPG Securities located in Tokyo.

“This is in sharp contrast to the Fed, which is moving steadily as scheduled towards the normalization of policy. The euro looks ahead losses under such condition,” Fukaya said.

US President Donald Trump’s choices to the next central bank chair have been reduced to Fed Governor Jerome Powell and Stanford University economist John Taylor, according to reports. A White House official, though, said that no final decision has been made.

The decision is set to be revealed before Trump’s upcoming trip to Asia in early November.

Trade12 is a community of brokers and investors serving the quality service to all present and potential clients. Join our community. Trade12 awaits you!