Euro Drops As ECB Knot Hints At Rate Cut To Contain Currency Appreciation


The euro weakened against its major peers in the European session on Wednesday, after European Central Bank Governing Council member Klass Knot remarked that the central bank has tools to counter the strength of the single currency, if it threatens its inflation target.

In an interview with Bloomberg TV, Knot said that the ECB has scope to reduce its deposit rate further in order to improve financing conditions and attain its inflation goal.

“There is still room to cut rates,” Knot, who also heads the central bank of the Netherlands, said.

Such a move should be in conjunction with the ECB’s overall monetary stance which is determined by a multiplicity of tools, he noted.

The central bank is closely watching the recent appreciation of the euro to assess its impact on the inflation outlook.

“If it were to become too dominant, in terms of threatening to derail our inflation objective, then of course we would have the tools available to counter that,” Knot added.

Sentiment was subdued as investors remain wary of stretched valuations and caution prevailed ahead of the Federal Reserve’s monetary policy announcement due out later in the day.

The Fed is widely expected to keep monetary policy unchanged and assert its ultra-loose stance to support the economy.

Virus worries prevailed as global infections surpassed 100 million and Europe recorded a million new cases about every four days.

Also weighing on the stocks was weak German consumer sentiment index for February.

Market research group GfK said its forward-looking consumer sentiment index dropped 8.1 points to -15.6 in February from -7.5 in January. The expected reading was -7.9.

The euro fell to 1.2115 against the greenback from Tuesday’s closing value of 1.2160. The euro may locate support around the 1.20 level.

After a rise to 126.15 at 8:30 pm ET, the European currency pulled back to 125.78 against the yen. The euro is poised to challenge support near the 123.5 level.

Final data from the Cabinet Office showed that Japan’s leading index rose less than estimated in November.

The final reading for the leading index, which measures the future economic activity, was 96.4 in November, up from 94.3 in the previous month.The initial reading was 96.6.

The euro slipped to 1.0761 against the franc, registering a 6-day low. The euro is seen facing support around the 1.05 mark.

The euro slid to its lowest since May 2020 against the pound, at 0.8825. If the euro falls further, it may test support around the 0.86 region.

Data from the British Retail Consortium showed that UK shop prices declined further in January.

Shop prices decreased 2.2 percent year-on-year in January, after a 1.8 percent drop in the previous month.

The 19-nation currency dropped to a 1-year low of 1.6759 against the kiwi and a 5-day low of 1.5419 against the loonie, following its early highs of 1.6836 and 1.5472, respectively. Immediate support for the euro is likely seen around 1.66 against the kiwi and 1.52 against the loonie.

In contrast, the euro rose to 1.5733 against the aussie, after having declined to a 5-day low of 1.5674 in the previous session. On the upside, 1.62 is possibly seen as its next resistance level.

Data from the Australian Bureau of Statistics showed that Australia’s consumer prices rose 0.9 percent on year in the fourth quarter of 2020 – exceeding expectations for 0.7 percent, which would have been unchanged from Q3.

On a quarterly basis, inflation also gained 0.9 percent – beating forecasts for 0.7 percent and down from 1.6 percent in the three months prior.

Looking ahead, U.S. durable goods orders for December will be featured in the New York session.

At 2:00 pm ET, the Fed announces its decision on interest rate. Economists widely expect the federal funds rate to be kept at 0 – 0.25 percent.

The material has been provided by InstaForex Company –


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