Euro Retreats As ECB Lagarde Dampens Rate Hike Hopes
December 16 2021 - 5:23AM
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The euro erased its early gains against its most major
counterparts in the New York session on Thursday, after the
European Central Bank President Christine Lagarde said that the
central bank is unlikely to raise rates next year.
"Under the present circumstances... as I have said before, it is
very unlikely that we will raise interest rates in the year 2022,
that still stands," Lagarde said in a news conference.
The European Central Bank said that it will discontinue asset
purchases under the pandemic emergency purchase programme at the
end of March, but will expand its asset purchase programme
temporarily to maintain an accommodative stance of monetary
policy.
The Governing Council will conduct net asset purchases under the
PEPP at a lower pace in the first quarter of 2022 and end the
scheme at the end of March, the ECB said in a statement.
The Governing Council decided to extend the reinvestment horizon
for the PEPP to until at least the end of 2024.
Policymakers also decided a monthly net purchase pace of EUR 40
billion in the second quarter and EUR 30 billion in the third
quarter under the asset purchase programme.
From October 2022 onwards, the Governing Council will maintain
net asset purchases under the APP at a monthly pace of €20 billion
for as long as necessary to reinforce the accommodative impact of
its policy rates, the bank said.
The ECB said that it expects net purchases to end shortly before
it starts raising the key interest rates.
The bank left its key interest rates unchanged as expected. The
main refinancing rate thus remains at zero, the deposit rate at
-0.50 percent and the marginal lending rate at 0.25 percent.
Flash survey results from IHS Markit showed that Eurozone
private sector growth eased to a nine-month low at the end of the
year as rising coronavirus infection rates hit service sector
activity, offsetting improved manufacturing growth.
The flash composite output index came in at 53.4 in December,
down from 55.4 in November. The reading was also below the expected
level of 54.0. Nonetheless, a score above 50.0 indicates
expansion.
The euro pulled back to 1.0426 against the franc, after rising
to 1.0467 at 7:45 am ET, its highest level since November 26. The
euro is seen finding support around the 1.02 mark.
The Swiss National Bank maintained its expansionary monetary
policy, as widely expected.
Policymakers of the central bank decided to retain the policy
rate and interest on sight deposits at the SNB at -0.75
percent.
After rising to near a 4-week high of 129.64 at 8:45 am ET, the
euro eased off to 128.53 against the yen. The pair was worth 128.72
when it ended deals on Wednesday. Next key support for the euro is
likely seen around the 123.5 level.
Data from the Ministry of Finance showed that Japan posted a
merchandise trade deficit of 954.8 billion yen in November.
That was way short of forecasts for a shortfall of 675 billion
yen following the downwardly revised 68.5 billion yen deficit in
October (originally a 67.4 billion yen deficit).
The euro was trading at 1.1299 against the greenback, down from
more than a 2-week high of 1.1360 seen at 9 am ET. The pair had
closed Wednesday's deals at 1.1287. The euro is seen locating
support around the 1.10 mark.
The euro held steady against the pound, after falling to more
than a 2-week low of 0.8454 at 7:15 am ET. The euro-pound pair had
finished yesterday's trading session at 0.8509.
The Bank of England lifted its key interest rate to control a
surge in inflation.
The committee unanimously decided to maintain the bond purchase
programme at GBP 895 billion.
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