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EUR/USD inches up ahead of Draghi speech, Bank of England rate decision

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Investing.com -- EUR/USD inched up on Wednesday halting a three-day losing streak, ahead of a key interest rate decision by the Bank of England and a closely watched speech by European Central Bank president Mario Draghi.

The currency pair traded in a tight range between 1.0805 and 1.0888, before closing at 1.0874, up 0.0013 or 0.12% on the session. Since closing 2015 at 1.086, EUR/USD is relatively flat in the new year, down by approximately 0.50%. The euro is coming off a disappointing year when it plummeted approximately 10% against its American counterpart, amid sharp divergences in monetary policy between the Federal Reserve and the ECB.

EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.

Investors await a highly-anticipated interest rate decision by the Bank of England on Thursday for further indications on the strength of one of the world's largest economies. Last week, the sterling corporate bond market struggled in the U.K. amid mounting concerns that a referendum on a potential "Brexit," could be held as early as this summer. The British pound tumbled to a five and a half-year low earlier this week.

A departure by the U.K. from the European Union is viewed as potentially bearish for both the pound and the euro, amid heightened uncertainty on how the British and the euro zone economies could absorb the momentous split. At the very least, London's dominant hold on euro foreign exchange trading would likely decline, as flows gradually move on to Asia and other markets.

Also on Thursday, ECB president Mario Draghi could drop further hints on whether the central bank will cut its inflation target even closer to zero when the Governing Council meets later this month. Draghi is scheduled to deliver a speech on Thursday at a Eurogroup meeting in Brussels. Draghi spooked global foreign exchange markets early last month when the ECB only approved limited easing measures with its comprehensive asset-purcasing program.

Elsewhere, Federal Reserve of Boston president Eric Rosengren noted that the rout in Chinese equities in combination with persistently weak oil prices has led to mounting concerns of slowing global growth. The factors, Rosengren added, could compel the Fed to slow its pace of tightening this year. Rosengren's comments provide further ambiguity on whether the U.S. central bank could raise short-term interest rates before the end of the first quarter. Last week, Fed vice chair Stanley Fischer said in an interview with CNBC that economic conditions could be appropriate for the Fed to approve as many as four rate hikes this year.

Any upward moves this year are viewed as bullish for the dollar, as foreign investors pile into the greenback to capitalize on higher yields.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.15% to an intraday high of 99.40 before settling at 98.98. The index remains near 12-month highs from December, when it eclipsed 100.00.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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