Euro hits three-month low as investors digest eurosceptic vote

Currency is also being driven down by expectations of further ECB rate cut next month

Mario Draghi, president of the European Central Bank (ECB), pauses during a news conference earlier this month. Photographer: Jasper Juinen/Bloomberg

Mario Draghi, president of the European Central Bank (ECB), pauses during a news conference earlier this month. Photographer: Jasper Juinen/Bloomberg

 

The euro touched a fresh three-month low against the dollar today as investors awaited comments from European Central Bank chief Mario Draghi and digested weekend elections in which critics of the European Union more than doubled their presence.

Liquidity was likely to be thin during the rest of the global session, with UK markets shut for the Spring bank holiday and US markets closed for Memorial Day. Eurosceptic nationalists scored stunning victories in European Parliament elections in France, Britain and Greece yesterday, as voters registered discontent over immigration, austerity and unemployment.

Mr Draghi is scheduled to address ECB Forum in Portugal, the first of what the central bank says will be an annual event equivalent comparable to the US Federal Reserve’s annual Jackson Hole retreat. “It is hard to think that Draghi will say anything new or surprising,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo, though his speech will be closely watched for any signals about the ECB’s next steps.

“But still, the ECB will matter most to the euro’s near-term direction than any longer-term potential impact from the elections,” he added.

The euro has fallen more than 2 per cent on the greenback since May 5th against a backdrop of rising expectations that the ECB will ease policy next month, which in turn increased wagers on the common currency coming under pressure.

Commodity Futures Trading Commission published on Friday for the week ended May 20th showed speculators raised their net short positions in the euro to 9,220 contracts from 2,175 contracts the previous week. The common currency last traded at $1.3619, down about 0.1 per cent on the day. Early in the session, it briefly dipped to $1.3615, a low not seen since mid-February.

In the near term, it is seen drifting between $1.3600, where large bids are said to have been placed, and its 200-day moving average at $1.3639. Against its Japanese counterpart, the euro slipped about 0.2 per cent to 138.80 yen. Traders said the policy outlook will continue to be a negative factor for the euro rather than results of the weekend elections. “The reality is that these results - in France especially - won’t mean a whole lot in practise but optically it’s an obvious pretext for some pressure on euro and sterling,” said Ray Attrill, strategist at National Australia Bank in Sydney.