The euro fell one per cent yesterday on a darkening eurozone outlook, while global stock markets rallied as the European Central Bank chief pledged to beef up or prolong the bank’s economic stimulus if necessary. Oil prices also rose, following the rally in equities.
ECB President Mario Draghi’s comments on the bank’s bond-buying program came as the bank cut its inflation and growth forecasts for the eurozone, although he said no one on the bank’s Governing Council had argued to add to the program now. That helped to calm some jitters after weeks of market turmoil as investors gauge whether global monetary policy will be kept loose as central banks try to mitigate the recent market turmoil stemming from growing worries about China’s economy.
The euro fell, however, surrendering most of its solid gains put up against the dollar since China devalued the yuan last month.
Against the dollar, the euro touched a two-week low of $1.1108 during Draghi’s news conference. It was last off 1 per cent at $1.1109. It was as high as $1.1332 earlier this week as investors spooked by the market turmoil in China moved heavily into the euro and yen.
“Draghi at his press conference raised the risk of additional monetary support by the central bank,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. “We were expecting some dovish comments, and he delivered.”
Friday brings the monthly US jobs report, a key element in the Federal Reserve’s decision on when to raise interest rates for the first time in nearly a decade.
The Fed, which meets on September 16 to17, has said it will raise rates when it sees sustained economic recovery. While the labor market has strengthened, inflation remains below the Fed’s 2 per cent target.
MSCI’s all-country stock index rose 0.8 per cent, while the FTSEuroFirst leading index of 300 shares closed up 2.4 per cent. Germany’s DAX shot up 2.7 per cent .
The Dow Jones industrial average was up 103.66 points, or 0.63 per cent, at 16,455.04. The Standard & Poor’s 500 Index was up 12.62 points, or 0.65 per cent, at 1,961.48. The Nasdaq Composite Index was up 15.72 points, or 0.33 per cent, at 4,765.69.
Helping the stronger tone, data released yesterday showed new applications for US unemployment benefits rose more than expected last week, but the underlying trend remained consistent with a strengthening labor market.
China’s stock markets, the root of much of the global volatility in recent weeks, were closed yesterday for the start of a two-day holiday.