Euro falls as Lagarde says talk of winding down PEPP unwarranted

Publish May 24, 2021
banking

The euro lost ground against its major trading partners during the European session on Friday, after the European Central Bank chief Christine Lagarde said that the central Bank is determined to maintain the pandemic emergency purchase programme to protect the economy, as the bloc’s recovery is still uncertain.
It is premature to discuss winding down 1.85 trillion euro emergency bond purchase scheme in June, Lagarde said at a news conference after a Eurogroup meeting in Lisbon.
“We are committed to preserving favourable financing conditions using the PEPP envelope, and to do so until at least March 2022.” “It’s far too early and it’s actually unnecessary to debate longer-term issues. Our focus in June is going to be on favourable financing conditions for the economy at large and to all sectors,” Lagarde added.
Lagarde’s comments came after some policymakers suggested to begin withdrawing its emergency measures in the wake of accelerating vaccination programmes and reopening of the economy.
The ECB President refused to comment on the recent rise in bond yields, but indicated that the central Bank was closely watching borrowing costs.
The currency came under pressure earlier in the session, after a data showed that German manufacturing activity eased to a three-month low in April.
Flash survey results from IHS Markit showed that the manufacturing PMI fell to 64.0 in May from 66.2 in the previous month. Economists had forecast the reading to drop to 65.9.
The survey showed that supply shortages curbed production levels and weighed on new orders due to forced downtime at customers.
In economic releases, separate data showed that the euro area private sector activity grew the most in more than three years in May as economies continued to open up from virus restrictions.
The composite output index rose to 56.9 from 53.8 in the previous month. The score was expected to climb moderately to 55.1.
The currency was modestly higher against its major rivals in the Asian session, except the franc.
The euro dropped 0.6 per cent to 1.2171 against the greenback, after climbing to a 2-day high of 1.2240 at 2:00 am ET. The pair had closed Thursday’s deals at 1.2227. Should the euro slides further, it may find support around the 1.20 level. The euro touched a 4-day low of 132.53 against the yen, down by 0.5 per cent from a 2-day high of 133.21 seen at 8:30 pm ET. The pair was worth 132.97 when it ended deals on Thursday. The currency may locate support around the 129.00 level.
Data from the the Ministry of Internal Affairs and communications showed that Japan fell further into deflation as overall consumer prices were down 0.4 per cent on year - after slipping 0.2 per cent in March.
Core CPI, which excludes volatile food prices, was steady at -0.1 per cent on year.The euro lost 0.2 per cent against the franc to hit a 4-day low of 1.0948. At Thursday’s close, the pair was valued at 1.0968. Next near term support for the euro is likely seen around the 1.07 level.
Data from the Federal Statistical Office showed that Switzerland’s industrial production increased in the first quarter of 2021.
Industrial production grew 4.8 per cent year-on-year in the first quarter.
The euro was down by 0.4 per cent at 0.8583 against the pound, setting a 3-day low. The euro-pound pair had finished yesterday’s trading session at 0.8615. The next likely support for the euro lies around the 0.84 level.
Data from the Office for National Statistics showed that U.K. retail sales expanded 9.2 per cent month-on-month in April, faster than the 5.1 per cent increase in March and the economists’ forecast of +4.5 per cent as non-essential stores reopened. This was the biggest increase since June 2020, when sales were up 13.9 per cent.
On a yearly basis, retail sales volume grew sharply by 42.4 per cent, after rising 7.2 per cent in March.
The euro fell to a 3-day low of 1.4669 against the loonie from Thursday’s closing quote of 1.4741. On the downside, 1.44 is likely seen as its next support level.
Pulling back from a 3-1/2-month high of 1.5798 set at 3 am ET, the European currency dipped to a 2-day low of 1.5683 against the aussie.
The euro-aussie pair was worth 1.5716 at Thursday’s close. Further downtrend may take the euro to a support around the 1.54 area.

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