European Central Bank Rate Cut Expected in December

Though European Central Bank (ECB) hinted that it might tweak monetary policy further towards expansion last week and market is pricing at least another 10 basis points rate cut and Bank of Japan (BOJ) stayed away from further easing sighting moderate economy and oil to be responsible behind lowflation – European data is much better coming that of Japan’s.

The euro erased an advance versus the dollar amid speculation the European Central Bank is moving closer toward cutting its deposit rate when it meets next month.

“Demand for euro, in terms of real money, is still high”, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

“If you want to get a bigger bang for your buck, a broader euro weakening story rather than one that just (weakens the euro) against the dollar, then the ECB has to do a few of the work as well”, said Alan Ruskin, global co-head of FX research at Deutsche Bank.

The yield on the benchmark 10-year Bund fell 1.1 bps to around 0.67 percent, down from Monday’s eight-week high of 0.72 percent.

Including corporate bonds could disrupt the market, for equities the ECB’s share would be too small for it to have a meaningful portfolio, while including a wider range of public agencies’ debt raises tricky policy questions, he added.

Even ahead of the robust jobs data, a few investors had begun betting on a rate increase. Speculators bolstered bullish bets on the United States dollar in the week through November 3, as net long-dollar positions climbed to their highest in more than two months, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday. Earlier in the session, it dropped as low as $0.7016, its lowest since early October, pummelled by both the upbeat US labour report as well as disappointing Chinese trade figures. Against the yen, the dollar was buying 123.35 yen, up 0.2 per cent on the day and nor far from the previous day’s 2-1/2-month high of 123.60. The euro’s rebound brought it down about 0.2 percent on Monday, to 98.995.

Against the yen, the common currency stood at 132.20 yen, drifting off a six-month low of 131.45 plumbed overnight.