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The euro held steady on Tuesday, taking a breather after having rallied on the back of optimism about the euro zone's economic outlook and expectations for the European Central Bank to wind down its massive monetary stimulus. Comments by the Estonian central bank chief and ECB rate-setter Ardo Hansson on Monday reinforced those expectations, with Hansson telling a German newspaper that the ECB could end its 2.55 trillion euro bond-buying scheme in one step after September if the economy and inflation develop as now expected.
The euro last changed hands at $1.2263, staying within sight of Monday's peak of about $1.2296, its strongest since December 2014. Market participants said they expect the euro to remain on solid footing in the near term.
"The markets are going to continue on with this trend," said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, referring to the euro's recent gains. Although there is focus on whether the euro's strength would soon worry the ECB and encourage it to talk down the currency, there has been little sign of such push-back from the ECB so far, Innes said. The dollar's index against a basket of six major currencies stood at 90.509, having pulled up from Monday's three-year low of 90.279.
"We have been of the view that the risk on the euro/dollar is still on the upside," said Tan Teck Leng, forex analyst for UBS Wealth Management in Singapore. "The euro is still not at a level that should concern the ECB," Tan said, adding that the euro's recent strength seems to have had little negative effect on euro zone business sentiment or exports.
The dollar has weakened recently as markets grow increasingly confident that a global recovery will outpace US growth and prompt other major central banks, led by the ECB, to unwind their easy money strategy faster than has been expected. Against the yen, the dollar rose 0.4 percent to 110.93 yen, edging away from a four-month low of 110.32 yen set on Monday. Market participants cited short-covering in the dollar in the wake of its fall over the past week, and there was also talk of dollar-buying by Japanese importers.
A small cut to the Bank of Japan's buying of long-dated Japanese government bonds in a regular market operation last Tuesday had spurred speculation that the BOJ could edge away from its massive stimulus programme, pushing the yen and global bond yields higher.

Copyright Reuters, 2018

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