Euro Falls on Low Yields Expecting ECB Action

Euro zone government bond yields plumbed record lows on Wednesday and the euro fell to its weakest in a year against the dollar on expectations the European Central Bank will act soon to counter low growth and slowing inflation.

The prospect of further stimulus, through an asset-buying program known as quantitative easing, also buoyed stock markets. European shares rose again, building on two days of strong gains, and Wall Street was expected to open higher.

Fuelling the speculation of ECB easing, Italian Economy Minister Pier Carlo Padoan said Italy must lower its growth forecast for this year, and German consumer sentiment fell for the first time since early last year.

“When the (euro zone’s) largest economy is falling behind, this is very much increasing the chances of the ECB heading for further monetary measures, above all QE,” said DZ Bank strategist Daniel Lenz.

The yield on the benchmark German Bund DE10YT=TWEB fell some 4 basis points to a record low of 0.909 percent. Bund futures FGBLc1 climbed to a record high of 151.32. Yields fell across the euro zone, with records set in most higher-yielding debt, including Italy and Spain’s.

Euro zone inflation data due on Friday are likely to show a new low for this cycle of just 0.3 percent and add to the sense of urgency on policy.

ECB President Mario Draghi’s call last week for more action in both monetary and fiscal policy has markets betting further steps may come as soon as the central bank’s next policy meeting, on Sept. 4.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza