In US trade, the euro held relatively stable, consolidating much of its gains of the past few days.
The euro would now seem to be stuck in a bit of a tug-of-war between improved risk sentiment and the prospect for imminent monetary policy easing. Since a set of initiatives was announced to stabilise the European banking system by EU leaders at last week’s summit, there has been a notable easing of ‘European collapse’ fears and a squeeze of ‘short’ euro positions. However, this has been tempered by the realisation that many of the announced initiatives still face many political hurdles and will take some time to effectively implement as well as expectations that the ECB will this week cut rates by up to 50 basis points.
Last night, no one won the battle and the euro finished in a stalemate. Having ended yesterday’s Australian session around the 1.2605 level, the euro held relatively steady to close the US session at 1.2608. Upon resuming for Asian trade, the euro has drifted marginally into the high-1.2580 range.