Euro gains as ECB holds back ‘bazooka,’ Sterling falls on Brexit fears

NEW YORK: The euro rose on Thursday after the European Central Bank disappointed some investors looking for a larger stimulus boost, while sterling fell as the prospect of a no-deal Brexit appeared more likely.
The ECB expanded its debt purchase scheme and agreed to provide banks with even more ultra-cheap liquidity as long as they keep passing the cash onto companies.
However, “the European Central Bank did not present a big new bazooka,” said Carsten Brzeski, global head of macro at ING. It offered “a well-engineered extension of all well-known instruments to ensure that the current level of monetary accommodation is extended until at least the spring of 2022, hoping for the vaccine to have done its job by then.”
The ECB also said it is monitoring the euro’s exchange rate with regard to its possible implications for the medium-term inflation outlook, after it last week hit a two-and-a-half year high against the greenback.
Analysts and market participants are watching to see if global central banks indicate they may act to stem the relative strength of their currencies as the greenback tumbles.
“It’s the second major central bank to casually note exchange rate developments recently, underscoring the sliding USD,” said Mark McCormick, global head of FX strategy at TD Securities. “We don’t think there is too much the ECB can do to reverse market trends, though they can take some steam off the top.”
The Bank of Canada on Wednesday attributed strength in the Canadian dollar to U.S. dollar’s broad-based decline.
The euro was last up 0.49% on the day at $1.2082. The greenback dipped 0.61% against the loonie to $1.2741 after earlier reaching $1.2708, the lowest since April 2018.
The greenback also weakened after data on Thursday showed the number of Americans filing first-time claims for unemployment benefits increased more than expected last week as mounting COVID-19 infections caused more business restrictions.
Near-term U.S. fiscal stimulus appears unlikely after Democrat House Speaker Nancy Pelosi suggested wrangling over a spending package and coronavirus aid could drag on through Christmas.
Sterling slipped as market participants became more cautious about the risk of a no-deal Brexit.