Apache oil well in the Permian BasinThe European Central Bank’s decision on whether to inject fresh stimulus into the euro area next month may swing on a judgment over what’s causing a slide in oil prices.
Advertisement
For the struggling eurozone, it can’t happen soon enough.
In the United Kingdom, the pound is trading strongly against both the euro and the USA dollar – despite those disappointing retail sales figures yesterday.
For the short term, the options market has substantial barriers in place around $1.06 preventing the euro from falling further, while many investors may simply not have the appetite to put yet more money on the table just as the year is closing.
In particular, it strengthens Germany, the largest member of the currency union.
The euro, which slipped back below $1.07 against the dollar, was down 3.3 percent so far in November, on pace for its worst month performance since March.
“A… update by the European Central Bank staff of their September projections… suggested that there were downside risks to the September baseline scenario”, the European Central Bank said, referring to economic forecasts. It has fallen 4 percent since October 22, when ECB President Mario Draghi indicated more rate cuts were on the way. Markets are pricing in a 10 basis-point cut to the deposit rate and many also expect an extension of the ECB’s bond-buying programme.
In Frankfurt, RWE declined 1.08 percent and E.ON lost 0.87 percent.
Neil Williams, chief economist of fund manager Hermes in London, said that one of the things helping equity markets was the increasing degree of clarity on what the Fed and European Central Bank will do next month and on China’s support plans for its economy.
The ECB would assess the strength and persistence of the factors that are slowing the return of inflation towards 2 percent, the target level of the central bank, at its governing council meeting in December.
The Dow Jones industrial average .DJI rose 84.85 points, or 0.48 percent, to 17,817.6, the S&P 500 .SPX gained 7.85 points, or 0.38 percent, to 2,089.09, and the Nasdaq Composite .IXIC added 27.60 points, or 0.54 percent, to 5,101.24.
Draghi defended QE, noting it had brought down borrowing costs for euro-zone companies. That’s a steep fall from around $1.39 in the first quarter of 2014.
The euro fell following Draghi’s comments.
The strong dollar makes the price of imported goods cheaper in the United States. The minutes of the latest meeting of the Federal Reserve’s Open Market Committee (FOMC) released on Wednesday reinforced the view that U.S. interest rates will be raised in December.
Advertisement
“There is this sense that the downtrend in euro-dollar is already getting a little exhausted”, said Jane Foley, senior currency strategist at Rabobank International in London.
