The euro gained ground sharply against the US dollar on Wednesday, after Italian premier Enrico Letta survived the vote of confidence, European Central Bank maintained its benchmark rate at its policy meeting, while additional support for the common currency came after comments made by the ECB President Mario Draghi. The greenback, on the other hand, was pressured after ADP report on employment.
EUR/USD hit a new session high at 1.3606 at 13:30 GMT, also the pairs highest point since February 4th, after which consolidation followed at 1.3593, gaining 0.49% for the day. Support was expected at current session low, 1.3504, while resistance was to be met at February 4th high, 1.3658.
The euro was influenced positively by the news that Italian Prime Minister Letta survived the vote of confidence, while the former premier Berlusconi said in front of the Senate today that his party will provide support to the coalition government. Aside from Berlusconis U-turn decision, results showed that the current premier still could have won the vote, with 229 policymakers voted “yes” and 70 voted “no”.
At the same time, the European Central Bank (ECB) decided to keep its benchmark interest rate unchanged, despite decreasing private sector lending in the euro bloc and inflation rate still quite far from the targeted level by the bank of 2%, which is considered as providing price stability. The base interest rate remained at the record low level of 0.50% for the fifth consecutive month, but before this decision ECB policymakers considered a rate cut. Officials from the bank kept the deposit rate at zero and the marginal lending rate at 1%.
ECB President Draghi said at the press conference in Paris earlier today that he was ready to take any necessary measures to keep money market rates in check. “We’ll remain particularly attentive to developments which may have implications to monetary policy and consider all available instruments,” Draghi said, using the same tone as last month. “We have a vast array of instruments to this extent and we exclude no option in order to address the needs as is most appropriate.” Euro region’s economy has demonstrated signs of improvement since August’s ECB meeting on policy, as economic sentiment indicator, measured by the European Commission, rose for the fifth consecutive month and the index of factory output registered a third month of expansion. Mario Draghi stated that lending to households and business entities, which declined at a record rate in August, might start rising before the ECB completes a review of bank balance sheets next year, Bloomberg imparted. Draghi also said that the exchange rate of the euro was “not a policy target”, but yet, it was important to economic growth and price stability.
Meanwhile, the US dollar lost ground against peers, after a report by Automatic Data Processing Inc. (ADP) revealed that the private sector added 166 000 new job positions, which remained below expectations of 175 000 new jobs. ADP revised down August’s result to 159 000 jobs from 176 000 previously. This raised concerns over the pace at which economic recovery in the country was going.
Elsewhere, the euro was gaining against the sterling, as EUR/GBP cross added 0.25% to trade at 0.8374 at 14:26 GMT. EUR/JPY pair, on the other hand, was losing 0.35% on a daily basis to trade at 132.10 at 14:27 GMT.
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