Meanwhile, a referendum on Britain’s membership to the European Union, scheduled to take place before the end of 2017, will add to the reasons for investors to be cautious on sterling next year, according to Simon Derrick, the chief currency strategist at Bank of New York Mellon in London. This “deposit rate” is now minus 0.20 percent and is therefore effectively a penalty on banks. The Fed has made it clear that its next move will nearly certainly be to tighten policy with an interest rate hike, while the European Central Bank might cut rates even further, and seems bound to expand its quantitative easing programme.
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Euro zone central bank officials told Reuters that they are considering options such as staggering charges on banks hoarding cash and buying more debt ahead of next week’s ECB meeting.
The euro fell against most major currencies on Wednesday on expectations of further European Central Bank monetary stimulus, while USA economic data was strong enough to lift the dollar.
The interest-rate sensitive Schatz yield fell 1 bps to briefly touch a record low of -0.42 percent, suggesting markets have priced in a sizeable reduction in the ECB’s deposit rate. On the upside, 133.00 is seen as the next resistance level for the euro. “True, it is already heavily shorted but I expect the euro to fall towards parity with the dollar”, said a trader at a Japanese bank.
Growth in overall money supply, known as M3, also accelerated 5.3 per cent in October from 4.9 per cent in September.
The International Monetary Fund (IMF) is expected to announce on Monday whether it will include the yuan, also known as the renminbi, in its $280 billion basket of currency reserves, known officially as Special Drawing Rights, or SDR. The euro was fetching Dollars 1.0611 in early European trade Thursday.
Against the yen, the dollar was down 0.2 percent at 122.41, pulling back from a three-month high of 123.77 hit on November 18, and only just above this week’s low of 122.26.
Brent crude oil futures lost 34 cents, or 0.95 per cent, to $45.73 a barrel.
A solid quarterly report from chipmaker Infineon and a rebound in metal prices also provided support. The German DAX rallied 2.2 percent, France’s CAC 40 index climbed 1.5 percent and the U.K.’s FTSE 100 advanced 1 percent.
“The bias will be for cable to weaken”, Stuart Bennett, London-based head of Group-of-10 currency strategy at Banco Santander SA, said referring to the pound-dollar exchange rate.
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Helping drive gains in equities were shares of miners including Glencore and Anglo American amid reports that China’s government is preparing to boost its strategic reserves of nickel, zinc, and aluminium in an effort to bolster depressed prices.
