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FOREX-Euro surges then slides after ECB bond-buying extension
December 8, 2016 / 2:14 PM / 8 months ago

FOREX-Euro surges then slides after ECB bond-buying extension

(New throughout after ECB statement)

By Patrick Graham

LONDON, Dec 8 (Reuters) - The euro fell more than 1 percent on Thursday after hitting its highest in a month, as the European Central Bank announced an extension of its quantitative easing programme till the end of 2017 but also signalled it would trim monthly bond purchases.

Markets had widely expected the bank to extend the programme past March but forecasts had tended to centre on a six-month extension. So despite the cut in the amount of monthly new money-printing, it was judged a net negative for the currency.

As ECB president Mario Draghi held a news conference to explain the decision, the euro fell 1.1 percent on the day to $1.0640, more than a cent below levels seen immediately before the bank's statement at 1245 GMT.

"The bank has extended its quantitative easing programme until (next) December, which is more than what the market was expecting," said Naeem Aslam, chief market analyst at ThinkMarkets.

"However, the bank is going to reduce their firepower after March and will only be purchasing 60 billion. So you can say that the bank is tapering in a more dovish way."

The euro had also been strengthening ahead of Thursday's decision and traders said it had looked exposed to a turnaround after hitting $1.08 in morning trade. It peaked at $1.0875 in the first minute after the decision before turning lower.

A stronger greenback has been the consensus since Donald Trump's election as U.S. president a month ago, even if some senior bank analysts have begun to question the durability of the rally going into the holiday season.

"We are still in our camp of pushing the euro lower into the new year," said Alessio de Longis, a portfolio manager and macro strategist with Oppenheimer Funds in New York. "If we are right on the dollar's strength next year then it should break parity."

Other bankers underlined the problems that continue to undermine a European economic recovery that is still far behind that on the other side of the Atlantic.

"This decision has been taken when there is still no evidence of any pickup in underlying inflation or wages," said JP Morgan strategist Greg Fuzesi.

"It also comes just days after the Italian referendum, when the ECB could have erred on the side of caution." (Additional reporting by Jamie McGeever; Editing by Gareth Jones)

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