During Friday’s US session, the euro lost ground against the dollar after sources from the ECB announced that the Central Bank will await the German constitutional court ruling on the ESM before finalising its bond-buying programme.
This disappointed investors hoping to get the details of the programme at the ECB meeting on September 6. As the court ruling is on September 12, it now appears that the markets will have to wait until the next Central Bank meeting on October 4.
Spanish government bonds, a likely key target of the ECB, which came under some initial selling pressure, found some support from news reports that the ECB is considering setting yield band targets as ’one of the options‘ for its bond-buying programme. Reuters quoted an ECB official as saying that this is ’the most likely approach, and also the one that could be most successful‘. While the risks of a Greek exit from the eurozone seem to have subsided of late, which should support the euro in the near term, movements in the euro are likely to continue to be dominated by the daily see-sawing expectations of Central Bank action, both from the ECB and the Fed.
The end of this week looms as a key event risk for investors, with both Ben Bernanke and Mario Draghi set to speak at the Jackson Hole Symposium. Having ended Friday’s Australian trade around the 1.260 level, the euro hit a session low of 1.2482 before recovering to end US trade at 1.2512. Upon reopening for Asian trade, the euro has slipped marginally to be currently trading at 1.2505.