Euro Recovers on ECB Possible Rise of Bets

The euro remains steady, nearing its two-week high, against a bunch of currencies on Thursday. The rise resulted from rising bets the European Central Bank (ECB) may soon announce that it will start winding down its massive bond purchase program.

Peter Praet, ECB’s chief economist, said that the ECB would debate next week.

The discussion will focus on deciding whether to end bond purchases or not later this year. The bond purchases this year are unprecedented at 2.55 trillion euro ($2.99 trillion).

The euro surged to a two-week high of $1.1800 flat. The currency last traded at $1.1781, extending its gains by 1.15 percent this week.

Euro also strengthened against other currencies, trading at 1.1640 Swiss franc and 129.83 yen.

Societe Generale‘s Director of Forex Kyosuke Suzuki said, “In the near term, we are likely to see event-driven trading on the euro. We should expect the euro to jump 100 pips (one cent) quite easily on comments from key officials.”

Italy Crisis

Market players were surprised, as they had thought that the Italy’s political crisis would make policymakers cautious about indicating an end to stimulus at its policy meeting on June 14.

The yield spread of Italian debt to German Bunds widened on Wednesday, as the bonds are seen as the biggest beneficiary of the ECB’s buying.

Daiwa Securities’ chief currency strategist Mitsuo Imaizumi said, “This euro buying is essentially short-term trade. People don’t know when Italian debt problems will be solved but they do know when the ECB might announce an exit from stimulus.”

“So speculators are bidding up the euro ahead of the meeting next Thursday. I bet some of them will aim to take profits before the event. The same can be said for the dollar/yen as they are buying the dollar ahead of the Fed’s meeting,” he added.

The Federal Reserve is expected to raise interest rates for the second time this year on Wednesday.

Meanwhile, several investors are cautious on making huge bets due to uncertainties over trade fictions. US President Donald Trump looks set to clash with other Group of Seven leaders at their weekend summit in Canada.

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