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FOREX-Dollar stabilises as Europe's new lockdowns keep risk appetite subdued; ECB in focus

* Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E

LONDON, Oct 29 (Reuters) - The dollar edged up slightly on Thursday and riskier currencies remained subdued, with markets worried about Europe’s second wave of coronavirus infections and cautious ahead of the European Central Bank’s meeting.

Rapidly rising COVID-19 infection rates in Europe, along with caution ahead of the U.S. elections, triggered the worst market sell-off since June earlier this week.

France and Germany ordered their countries back into lockdown, after Europe’s death rate jumped 37% last week.

“The safe haven currencies of the US dollar, yen and Swiss franc have been boosted by building fears over the darkening outlook for global growth,” MUFG currency analyst Lee Hardman said in a note to clients.

“The main trigger for the sell-off in risk assets has been the decisions taken by the French and German governments to significantly tighten restrictions on activity in an attempt to dampen the spread of COVID-19,” he said.

Implied volatility gauges with a one-week maturity for currency pairs such as euro-dollar and dollar-yen, rose to their highest in more than six months on Wednesday, and remained elevated on Thursday.

Global equity markets had a mixed start on Thursday, with futures pointing to a recovery on Wall Street.

The dollar, which hit a nine-day high in the previous session, held steady overnight and strengthened further in early London trading.

The dollar index measured against a basket of currencies was up 0.1% on the day at 0818 GMT.

The ECB is expected to hold off with new stimulus measures this week, but is likely to signal more action in December.

Its policy announcement is due at 1245 GMT, followed by a news conference at 1330 GMT.

At 0823 GMT, the euro was down 0.1% against the dollar at $1.173.

“Compared to the September meeting, the focus will not be so much on the ECB comments on the exchange rate,” wrote ING’s chief EMEA FX and IR strategist, Petr Krpata.

“Instead all eyes will be on hints at further easing, likely via the additional bond purchases,” he said.

Krpata said the euro has been resilient despite the euro-specific negative news such as the second wave in Europe, downgrades to euro zone growth outlook and market expectations of further easing in December.

Commerzbank currency and emerging markets strategist Thu Lan Nguyen said the market will be looking for signals that December’s package of measures will include a rate cut.

“At some point the ECB has to deliver on the rate cut front for the euro to remain capped on a sustainable basis. That is the bit we are really skeptical about and therefore we remain medium to long term bullish on EUR-USD,” she said.

Against the yen, the euro held near a three-month low, down 0.2% on the day at 122.29 yen at 0836 GMT.

The yen was broadly steady against the dollar at 104.250 after the Bank of Japan trimmed its economic growth and inflation forecasts, but, as expected, made no changes to its monetary policy.

The riskier Australian and New Zealand dollars recovered some of Wednesday’s losses during the Asian session, but fell again in early London trading .

China’s offshore yuan was up 0.3% on the day at 6.7111 to the dollar at 0838 GMT. China’s major state-owned banks have been swapping U.S. dollars for yuan this week, traders said on Thursday, suggesting monetary authorities were trying to rein in the currency.

The onshore yuan has appreciated 7% against the dollar since the depths it hit in May.

Reporting by Elizabeth Howcroft Editing by Tomasz Janowski

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