The euro bulls took the upper hand on Thursday ahead of the closely watched European Central Bank rate decision. However, the gains were subdued as traders adopted a cautious stance ahead of European Central Bank President Mario Draghi's post-meeting press briefing.
The European Central Bank is likely to leave its benchmark interest rate at a record low 0.75 percent. The announcement is due at 7.45 am ET and Draghi will hold a regular press conference at 8.30 am ET.
Last Thursday, Draghi reaffirmed the central bank's commitment to secure the euro. "Within our mandate, ECB is ready to do whatever it takes to defend the euro", Draghi said.
Yet, economists are doubtful that ECB would announce any drastic measures. "Any action to substantially tackle the debt crisis would come with a high risk of inviting political complacency and moral hazard," ING Bank Economist Carsten Brzeski said.
Some economists expect that the central bank would begin bond buying of indebted nations in the form of Securities Markets Programme, or SMP, purchases. However, this will generate strong opposition from Germany who has been a strong opponent for the very idea of ECB bond buying.
Meanwhile, the Federal Reserve refrained from announcing any new stimulus measures despite offering a sobering assessment of the U.S economy. The Fed noted yesterday that economic activity decelerated over the first half of the year and predicted that economic growth would remain moderate over the coming quarters.
The central bank kept interest rates unchanged at near-zero levels and reiterated that rates are likely to remain at exceptionally low levels at least through late 2014. While the Fed also said it will closely monitor incoming data and will provide additional accommodation as needed, it did not offer any new measures following last month's extension of Operation Twist.
The Monetary Policy Committee of the Bank of England is widely expected to maintain the asset purchase programme unchanged at GBP 375 billion and the key interest rate at a historic low of 0.50 percent. The announcement is due at 7.00 am ET.
In economic news, the eurozone industrial producer prices fell 0.5 percent month-on-month in June, the same rate of decline as seen in the prior month, Eurostat reported today. Economists had expected a more modest 0.4 percent increase.
On a yearly basis, producer price inflation eased to 1.8 percent from 2.3 percent in May. The annual rate fell below the consensus forecast of 1.9 percent.
At the same time, Standard & Poor's affirmed Germany's top notch 'AAA' credit rating and maintained its 'stable' outlook. The rating agency said Germany has a highly diversified and competitive economy with a demonstrated ability to absorb large economic and financial shocks.
The 'stable' outlook reflects expectation that its public finances will continue to withstand potential financial and economic shocks and that consensus in favor of prudent economic policies will remain.
The common currency appreciated by more than 0.6 percent to trade near the key 1.23 level against the US dollar around 5:30 am ET from Asian session's 1-week low of 1.2219. Any positive signal from Draghi could help the pair retesting the 1.2335/40 resistance area but potential pessimism could lead a support below the 1.2150 level.
Against the pound, the euro advanced above the key 0.79 level for the first time in nearly 3 weeks. The euro-pound pair is presently trading at 0.7894, off its session's high of 0.7910, with 0.7950 seen as the next likely resistance level and 0.7850 the probable support.
The Chartered Institute of Purchasing & Supply/Markit Purchasing Managers' Index rose to 50.9 in July from 48.2 in June. The reading also beats forecast for a rise to 48.7.
The single currency outperformed against its Switzerland counterpart on Thursday, hitting nearly a 5-week high of 1.2032 at the beginning of the London/European trading. The pair erased some of its gains shortly and is now trading around the 1.2020 area.
Switzerland's retail sales increased at a notably slower pace of 3.7 percent year-on-year in June, compared to 6.4 percent growth recorded in May. Meanwhile, Switzerland's manufacturing sector contracted for the fourth consecutive month in July to 48.6, down from June's reading of 48.1. Economist had forecast the index to drop to 47.0.
The euro rose modestly against the yen, rising as high as 96.33 before holding steady around 4:35 am ET. The euro-yen pair is presently worth 96.12 and its next upside barrier could be yesterday's peak of 96.50 and a probable support line is seen at 95.70.
The International Monetary Fund said today that the yen was "moderately overvalued" and urged the Bank of Japan to ease policy further to beat deflation. It also warned that the system's massive holdings of government bonds put risks in the Japanese finance system.
Looking ahead, the U.S. factory goods orders for June and the weekly jobless claims for the week ended July 28 are due for release in the New York morning session.
For comments and feedback: editorial@rttnews.com