The euro traded in proximity to its highest point in eight months against the US dollar on Thursday, due to developments regarding political situation in Italy and as US government shutdown continued, raising concerns that it could lead to economic growth slow down and urge the Federal Reserve Bank to maintain the pace of its stimulus program.
EUR/USD reached a session high at 1.3622 at 2:00 GMT, also the pairs highest point since February 4th, after which consolidation followed at 1.3595, gaining 0.12% for the day. Support was likely to be found at October 2nd low, 1.3506, while resistance was to be met at February 4th high, 1.3658.
The euro received support after the news that Italian Prime Minister Enrico Letta survived the vote of confidence, while the former premier Berlusconi said in front of the Senate on Wednesday that his party will provide support to the coalition government. Aside from Berlusconi’s U-turn decision, results showed that the current premier still could have won the vote, with 229 policymakers voted in favor of the government and 70 voted against it.
Additionally, European Central Bank President Mario Draghi said at the press conference in Paris yesterday that he was ready to take any necessary measures to keep money market rates in check. The central bank was ready to extend a third round of ultra-cheap loans to banks, in order to ensure that recovery will continue. 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. It also became clear that before the final decision on policy at ECB meeting, policymakers from the bank considered a rate cut.
Meanwhile, the greenback remained under pressure, because of concerns over the effects of the government shutdown on economic recovery. “The focus is on the U.S., and the ongoing pushback we’re seeing in tapering expectations, and the toll that’s taking on U.S. bond yields and the U.S. dollar,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington, cited by Bloomberg. “The fiscal shenanigans in Washington mean more potential for volatility and choppiness.” House Republican leaders plan to bring up a measure to raise the debt ceiling as soon as next week as part of a new attempt to force President Obama to negotiate on the budget, the same media imparted.
Boston Fed President Eric Rosengren, who is a consistent upholder of record stimulus measures and who votes on policy this year, said on Wednesday that the Federal Reserve bank abstained from scaling back its bond purchases in September, as economic growth figure was lower than projections and fiscal policy also posed a threat to the outlook.
Meanwhile, the euro was gaining against the pound, as EUR/GBP cross added 0.11% to trade at 0.8381. EUR/JPY pair was advancing 0.56% for the day to trade at 133.00.