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Currencies: Call it What You Will, but Euro Moving Higher Following ECB Intervention

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In a surprise move, the European Central Bank announced this morning that it would buy 2.5 billion euros in what it described as a routine book-balancing operation.

"This is not for intervention purposes," stated an ECB spokesman. The funds for the euro purchase are interest earned on foreign currency reserves and, in the view of the ECB, should not be seen as intervention in the market. "It represents a normal central bank practice of putting extra reserves back into the market at convenient opportunities."

Market participants treated this action as "quasi-intervention" and regard it as a clear indication that the ECB is willing to use such tactics to assist their soggy currency. The immediate market reaction was to push the euro higher to $0.8690, from earlier lows of $0.8565.

"It was fairly surprising," said Steven Saywell of

Fuji Bank

in London. "It was a blunt response to downward pressure in the euro," he added.

Saywell notes that the sum involved -- 2.5 billion euros -- is quite small in the context of the forex market. "That's not an enormous amount. As far as turning the euro is concerned, it's not going to work," Saywell opined.

The ECB left euro interest rates unchanged as expected at its regular meeting this morning.

Euro-zone, second-quarter

GDP

rose in line with expectations at 0.9%, giving a year-on-year rate of 3.8%.

U.S.

Producer Price Index

(

definition |

chart |

source

) for August fell 0.2%.

Retail sales

(

definition |

TST Recommends

chart |

source

) rose 0.2%. These benign numbers should keep the forex market well disposed towards the dollar.

Dollar/yen is opening little changed at 107.05.

The euro's sharp up move this morning has impacted the euro/yen cross rate and the single currency is now standing at 93.00 yen from 92.00 last night.

Sterling has popped up with the euro and is opening at $1.4170. Retail sales in the U.K. rose a greater-than-expected 0.6% in August, 4.0% for the year.

The euro/sterling rate has moved in favor of the stronger euro and is now at 61.35, from 60.95 yesterday.

The Swiss franc is stronger as the euro gains vs. the dollar, despite slower-than-expected Swiss second quarter

GDP

announced this morning. GDP rose at an annualized rate of 2.5%, well below the prior quarter rate of 3.9%.

The

Swiss National Bank

left its interest rates unchanged today.

The Canadian dollar is opening weaker at C$1.4900. Canadian

CPI

for August slowed to an annualized 2.5% from 3.0% in July.

The Australian dollar is opening at $0.5530, after touching a new record low of $0.5485 earlier today. While the economy is doing well, traders are very negative toward the currency and nothing seems to attract buyers. Further interest rate hikes may be necessary to boost the currency.

The New Zealand dollar is also lower at $0.4190.

The tick-up in the euro has not helped the zloty vs. the dollar and the Polish currency is opening around 4.87/dollar as forex inflows are seen diminishing in coming weeks.

The South African rand is holding at lower levels of 7.12/dollar after seeing lows of 7.18 earlier in the session.

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