Euro selling extended into Asia on Friday after the European Central Bank said it would hold off hiking interest rates at least for another year, while equity traders were uneasy ahead of Donald Trump’s decision on whether to hit China with fresh tariffs.
The single currency was hammered on trading floors after the ECB’s announcement Thursday, which was accompanied by a cut in its eurozone growth outlook, citing rising protectionism and global trade fears.
Confirmation that it would end its crisis-era bond-buying stimulus provided little support as that had been widely expected.
The news came a day after the Federal Reserve said it would likely hike US rates twice more this year and four times in 2019, highlighting an increasing divergence between the two.
The euro dived to $1.1580, from above $1.1800 earlier Thursday. And in early Asian trade the unit sank even further towards 10-month lows.
“The signals from the (Fed) and ECB couldn’t be more different,” said Stephen Innes, head of Asia-Pacific trading at OANDA. “The Fed, barring any unexpected financial market calamity, is primed to raise interest rate every quarter while the ECB will continue to sit on their hands well into 2019.
“These opposing views should see interest rates diverging more between the two most powerful central banks in the US’s favour which should continue to lend support to the dollar. And should keep the Euro circling the drain well into the summer.”
EU agrees tariffs
The news sent European stocks soaring as a cheaper euro boosts the bloc’s exporters. But while the Nasdaq hit another record on Wall Street, US stocks were choppy as fears grow that Trump will on Friday announce tariffs on billions of dollars worth of Chinese imports.
Those worries filtered through to Asia, where markets fluctuated. Tokyo ended the morning 0.4 percent higher and Sydney added more than one percent.
Hong Kong gained 0.1 percent and Wellington edged up but Shanghai lost 0.3 percent, Seoul dropped 0.5 percent and Taipei was also lower.
Trump is due to make a decision Friday, with many expecting him to push through the measures, with China threatening to retaliate in kind — stoking fears of a trade war.
Tai Hui, JP Morgan Asset Management chief market strategist for Asia-Pacific, said that while a thumbs-up from Trump would not be a surprise, there were concerns that talks between the two sides have seen little progress.
He added that another worry Trump’s threatened sanctions on Canada and the European Union.
The EU on Thursday approved a raft of tariffs targeting US goods.
Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney, warned: “Implementation of the tariffs, when it occurs, could take us closer to a trade war.”
The International Monetary Fund said the White House’s import duties could harm the world economic recovery by “catalysing a cycle of retaliatory responses” and interrupting global supply chains.
Key figures around 0230 GMT
Tokyo – Nikkei 225: UP 0.4 percent at 22,827.77 (break)
Hong Kong – Hang Seng: UP 0.1 percent at 30,459.56
Shanghai – Composite: DOWN 0.3 percent at 3,036.04
Euro/dollar: DOWN at $1.1564 from $1.1580 at 2100 GMT
Pound/dollar: DOWN at $1.3250 from $1.3270
Dollar/yen: DOWN at 110.50 yen from 110.64 yen
Oil – West Texas Intermediate: UP six cents at $66.95 per barrel
Oil – Brent Crude: DOWN five cents at $75.89 per barrel
New York – Dow Jones: DOWN 0.1 percent at 25,175.31 (close)
London – FTSE 100: UP 0.8 percent at 7,765.79 (close)