Euro still down as QE3 hopes dwindle

The euro declined by a little again yesterday as hopes that Federal Reserve chair Ben Bernanke will announced QE3 at the Jackson Hole meeting begin to wane. The single currency was only down 0.1 per cent, however, and generally there was little movement in the markets as investors continue to hold on until today’s meeting, the ECB policy meeting next Thursday and the Fed policy meeting on September 12-13.

Hopes were initially raised that Bernanke would announce more quantitative easing after minutes from the most recent Fed meeting suggested that it could happen “fairly soon”. However, Federal Reserve Bank of Atlanta head Dennis Lockhart said in an interview yesterday that it would be a “close call” whether or not QE3 will be introduced so soon.

The euro experienced a session low of $1.2486 yesterday and a session high of $1.2563, before eventually settling down at $1.2509. Economic data coming out of the US this week has helped the dollar by being slightly more positive than expected. Reports indicated that the number of new claims for jobless benefits stayed the same, while spending for August was at at its highest in five months.

Some experts are predicting that Bernanke will not make the big move because of the positive jobs data. If nothing new is said at the meeting, the dollar is likely to do well in international markets, while a statement about QE3in the short term could be detrimental.

The euro benefited from news from China’s premier that the country will buy more EU government bonds. Italy also managed to sell 10-year bonds with yields of less than six per cent at an auction yesterday, raising expectation that the ECB will soon reduce borrowing costs for struggling Eurozone members.

The euro, however, remained down 0.2 per cent at 98.36 against the yen, while the greenback was also down 0.1 per cent to 78.61. Meanwhile, commodity-reliant currencies continue to struggle amid worries about the Chinese economy. The Asian powerhouse traditionally buys huge amounts of copper, iron and steel from Australia. The Aussie dollar was down 0.4 per cent yesterday at $1.0305.