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Euro further above $1.20 on ECB’s taper pledge and ‘lack of panic’

Is this Mario Draghi’s euro vision long contest?*

The president of the European Central Bank’s signal that it would set out plans in October to phase out its €60bn monthly stimulus spending, despite the strong euro, is continuing to energise the shared currency.

It is getting more frimly established over $1.20, up 0.2 per cent at $1.2045, taking its rally over two sessions to over 1 per cent.

As Lena Komileva at G+ Economics observes:

The European Central Bank’s lack of panic about the exchange rate is [partially explained by] the improved outlook for domestic demand behind the Eurozone’s upgraded growth outlook, from both consumer spending and business investment.

Mario Draghi gave no hint that the ECB is overly concerned with the current level of the euro; the purpose of his ‘soft’ verbal intervention was mainly to prevent further speculative exchange rate appreciation. It was not to guide markets towards expecting unilateral policy devaluation

And as the moves toward more hawkish policy at the ECB coincide with expectations that the pace of the US rate tightening will ease, the dollar is heading lower across the board. The index tracking the greenback against six of its peers is down 0.4 per cent at 91.289, taking it back to levels last seen in early 2015.

The gloom-loving yen has responded to a downward revision to the country’s second-quarter growth by climbing by an eye-catching 0.7 per cent to Y107.74 per dollar.

The pound is also higher, up 0.3 per cent at $1.3135, its first time over $1.30, a 26-session peak.

Meanwhile, the yield on US Treasuries is down a further 4 basis points at 2.02 per cent as investors continue to buy the debt as they refine their expectations for monetary policy. The yield, which moves inversely to the debts price, is at its lowest level since the November’s US presidential election.

Eurozone government bonds are steadier, after a rally for the debt pushed their yields lower in the immediate aftermath of the ECB’s Thursday comments. The yield on 10-year Bunds is flat at 0.30 per cent, having slipped 4 basis points over the previous session.

European stocks are slipping, with London’s FTSE 100 down 0.2 per cent and Frankfurt’s Xetra Dax 30 down 0.1 per cent. The region-wide Euro Stoxx 600 is down 0.3 per cent.

The drift follows a mixed session in Asia and an uneven session on Wall Street, where the S&P 500 index closed down fractionally in volatile trade.

Hong Kong’s Hang Seng index is up 0.4 per cent per cent thanks in part to a rally in the real estate segment. The Topix is off 0.3 per cent in Tokyo. Seoul’s Kospi is down 0.1 per cent.

Crude oil prices are mixed after choppy trading over the previous session, which followed data from the US Energy Information Administration showing crude stockpiles had recorded their first weekly increase in more than two months after Hurricane Harvey shut down energy industry operations.

Brent crude, the international benchmark, is 0.4 per cent at $54.71 a barrel. West Texas Intermediate, the US marker, is down 0.1 per cent at $49.05.

*sorry. Complaints please to michael.hunter@ft.com