Many reckon that the European Central Bank will struggle to tamp down euro strength. It is given the greater investor confidence in the block. That confidence came after a joint recovery fund and quick and sharp response to the pandemic.
Moreover, this week, euro interbank rates have hit record lows. Thus, it reflects abundant liquidity in the financial system. Banks are unable to deploy adequately.
Petr Karpata works at ING Bank. He said that the Bloomberg report suggested the European Central Bank will see less need for imminent action. Lagarde predicted that he would restrict herself to say that the exchange rate was being closely monitored.
Karpata said that all this suggests it is a modest upside risk to the euro/dollar with pair moving to or above the 1.1850 level today.
The United States dollar weakness allowed sterling to stabilize at $1.30. On Wednesday, it dipped to a six-week low of $1.2839. It was after Britain unveiled draft legislation. It raises risks of it exiting the European Union single market in four months with no trade agreement in places.
European Central Bank
The British sterling slipped to 90.90 pence per euro. Thus, it was close to a six-week low.
There are concerns around worsening diplomatic ties with China over the treatment of the two countries’ journalists. Thus, the Australian dollar fell to $0.7268. Also, investors monitor an outbreak of coronavirus infections in the state of Victoria.
Euro edged 0.2% higher, ahead of European Central Bank data. Thus, the United States dollar rally cools off, the sterling stabilized. We might see policy easing at the European Central Bank meeting.
Against a weaker United States dollar, the euro edged higher on Thursday. Nevertheless, gains capped. There is the possibility that the European Central Bank may flag more easing in case it deemed inflation and economic recovery at risk from currency appreciation.