Euro Drifts Ahead of Brexit Summit, ECB Meeting

The euro edged higher against the dollar and was little changed against sterling in early trade in Europe on Wednesday, with two big diary events looming large over the market.

At 04:00 AM ET (0800 GMT), the euro was at $1.1271, up around 0.1% from late Tuesday in Europe. The pound was at $1.3076 against the dollar and 1.1602 against the euro, still stuck in the tight range of recent sessions.

The dollar index, which measures the greenback against a basket of six major currencies, was at 96.565, down fractionally from late Tuesday.

U.S. dollar and Euro notes are seen in this November 7, 2016 picture illustration. Picture taken November 7. REUTERS/Dado Ruvic/Illustration

The emergency European Union summit on Brexit appears likely to agree some form of extension to the U.K.’s date for leaving the bloc, but the terms it will require are still uncertain, after U.K. Prime Minister Theresa May’s visits to Paris and Berlin on Tuesday failed to gain approval for her proposal of a short delay until June 30.

“The European Union is in no mood to force a hard Brexit, whatever the chatter,” Marc Ostwald, strategist at ADM ISI in London, wrote in a note to clients on Tuesday.

The day’s other big event in Europe is the European Central Bank’s regular meeting, brought forward by a day to allow policymakers to get to Washington DC in time for the International Monetary Fund’s spring meeting.

On Wednesday, the IMF cut its forecast for world growth this year to the lowest since 2009, a mere 3.3%, due not least to a slowdown in the euro zone that the ECB is under pressure to stop.

No policy action is expected this week, but market participants will be anxious to hear more detail about the possibility of ‘tiering’ the penalty rate on deposits at the ECB, a step that would allow the bank to cut its official interest rates again without hurting the already weak profitability of euro zone banks. They’ll also want to hear more about the new long-term loans that are due to start in September, and about whether the ECB wants to use them to increase overall liquidity (thereby loosening monetary conditions), or merely to stop it falling.

Elsewhere, the dollar drifted lower against the Aussie and kiwi overnight, and was also off recent highs against the Turkish lira ahead of an important update on policy reform by Finance Minister BeratAlbayrak.

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