Euro recovers ahead of ECB interest rate decision

Published: 5 Nov at 9 AM Tags: Euro, Dollar,

The euro has recovered from a near seven-month trough on better manufacturing data coming out of the eurozone. However, gains were muffled by the expectation that the European Central Bank might make moves to cut interest rates. A drop in inflation throughout the region has led to a number of banks, including Royal Bank of Scotland and UBS, to predict a refinancing rate cut as early as this week.

A rise in the manufacturing Purchasing Managers’ Index from September’s 51.1 to last month’s 51.3 has helped the euro push up 0.2 per cent to $1.3509. The single currency had earlier fallen to a low of $1.3441.

Although a number of major banks do not expect ECB chief Mario Draghi to announce a cut in interest rates this week, the euro could still come under pressure if the deposit rate is cut. If this happens, it will make parking excess money with the ECB more expensive and could force a sell-off of euros.

However, any major market shifts are unlikely until the results of the ECB meeting are clarified and nonfarm payroll stats are released by the US on Friday.

Elsewhere the dollar has remained steady against its Japanese rival at 98.68 yen. Better than anticipated retail sales in Australia have helped the Aussie dollar push up 0.8 per cent to $0.9507.