June 15, 2018 / 8:12 AM / in 10 months

FOREX-Euro headed for worst week since 2016 after ECB holds off on rate hikes

* EUR/USD down about 1.7 pct on week, worst loss since Nov 2016

* Euro hit as ECB opts to keep rates steady through summer of 2019

* Dollar index rises to highest since Nov 2017

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Tom Finn

LONDON, June 15 (Reuters) - The euro on Friday was headed for its biggest weekly loss in 19 months after the European Central Bank unexpectedly said it would keep interest rates at record lows well into next year.

The ECB’s crisis-era stimulus of massive bond purchases aimed at boosting the euro zone economy will end this year but interest rates will remain steady at least through the summer of 2019, the ECB’s president Mario Draghi said on Thursday.

Euro bulls who expected the ECB to hike rates at an earlier juncture were caught out as the single currency slumped nearly 1.9 percent, sending traders piling into the dollar and yen.

The single currency stabilised on Friday, trading up 0.1 percent against a broadly strong dollar at $1.1573.

But the currency was down 1.72 percent on the week, positioning it to have its biggest weekly loss since November 2016.

Analysts said they foresaw further pain for the euro in the near-term citing slowing growth in the euro zone, political instability in Italy and global trade tensions.

“Europe needs stronger data to change the rate debate and a calmer Italian political backdrop to provide confidence that normalisation leads to a stronger currency,” said Societe Generale macro strategist Kit Juckes.

“$1.15 is crucial. It’s also our forecast for where we will be in September, with a gradual rehabilitation thereafter,” he said.

Other analysts said they thought that now the ECB’s closely-watched meeting was out of the way and the picture for interest rates clearer, currency markets could embrace more risk.

“The ECB has mapped out a definitive trajectory for quantitative easing and set a far-off date for the earliest rate hikes. All this removes some uncertainty from markets and supports risk-taking over the second half of June,” said Societe Generale analyst Guy Stear.

The ECB’s benign stance contrasts with the steady rate hike campaign pursued by the U.S. Federal Reserve.

The Fed on Wednesday raised interest rates for the second time this year and indicated that it could tighten policy two more times in 2018.

“The euro showed such a big reaction to the ECB meeting as its stance came in sharp contrast to the Federal Reserve, which had struck a hawkish tone just the day before,” said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

The dollar’s index against a basket of six major peers rose on Friday to as high as 95.131, its strongest since Nov. 7, after rallying more than 1 percent on Thursday.

The greenback was up roughly 1 percent versus its Japanese peer on the week, during which it brushed a three-week peak of 110.850 after the Fed’s Wednesday policy announcement.

The currency pair, sensitive to shifts in risk appetite in the broader markets, could be impacted by developments later on Friday in the U.S.-China trade spat.

U.S. President Donald Trump is due to unveil revisions to his initial tariff list targeting $50 billion of Chinese goods, and focus was on whether the revisions would ease or further fuel trade tensions.

Against a broadly stronger dollar, the Australian dollar was down 0.25 percent at $0.7458 after slipping to a one-month trough of $0.7454 (Reporting by Tom Finn Editing by Peter Graff)

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