The euro weakened after European Central Bank policymakers expressed concern over its recent appreciation.
The single currency fell 0.3 per cent to $1.1814 on Thursday, following a Financial Times report that several members of the ECB’s governing council had expressed concerns over its rise against the dollar ahead of a monetary policy meeting next week.
One council member said the euro’s appreciation in recent weeks was “worrisome when you have weak demand, especially as the euro area is the most open economy in the world and unusually dependent on global demand”.
“Overall the comments suggest that an immediate policy response from the ECB to help weaken the euro appears unlikely,” said Lee Hardman, a currency analyst at MUFG. “They will rely more on jawboning to dampen euro strength for now.”
He added: “However, if the euro continues to strengthen it will increase pressure on the ECB to deliver more stimulus.”
The currency depreciation boosted European stocks. The continent-wide Stoxx 600 rose 1 per cent in morning trading on Thursday. A weaker euro helps the bloc’s stocks appear cheaper to outside investors and supports European exports.
France’s CAC 40 rallied 1.8 per cent on the day that Paris launches its €100bn fiscal spending plan.
London’s FTSE 100 added 0.8 per cent, with buyout specialists Melrose Industries rising 13 per cent after it said recent trading had been at the “higher end of the board’s expectations”, especially in the auto sector. Still, the group posted a £685m half-year loss.
“The market feels tinder-dry for some good news on those [non-tech] businesses,” said Alan Custis, head of UK equities at Lazard Asset Management.
Futures tipped US stocks to fall 0.3 per cent when trading begins on Wall Street later in the day. The S&P 500 closed 1.5 per cent up at another record on Wednesday following reports that the White House and Democrats in Congress were discussing an extension of support for unemployed Americans.
Sophie Huynh, cross asset strategist at Société Générale, said that concerns about the upcoming US presidential election were blocking investors from piling into old economy stocks such as energy, consumer products and industrials, even as US coronavirus cases stabilise and an economic recovery takes hold.
“Despite the fact that the cyclical rotation has not happened, you could still have a melt up of US equities,” she said, adding that the S&P 500 could rise another 3 per cent to reach 3,700 due to “the Goldilocks scenario” of low interest rates along with monetary and fiscal stimulus.
The euro’s decline on Thursday has helped to stem the downward trend of the dollar, which has dropped 8 per cent in just over three months. The US currency added 0.3 per cent on Thursday against a basket of six major currencies.
The stronger dollar weighed on commodities. Brent crude, the international oil price benchmark, fell 1.9 per cent to less than $44 a barrel, while gold was 0.6 per cent lower at $1,931 per troy ounce.
In the Asia-Pacific region, stocks were mixed after data indicated that activity in China’s services sector increased again in August.
China’s CSI 300 and Hong Kong’s Hang Seng index trailed the rest of the region, falling about 0.5 per cent. Japan’s Topix index climbed 0.5 per cent, while South Korea’s Kospi was up 1.3 per cent.
The Caixin services purchasing managers’ index for China stabilised at 54 for August, well above the 50-point line separating growth from contraction. Employment in China’s services sector, which accounts for the majority of its economic output, rose for the first time since January.