The euro gained ground against the dollar on Thursday after Russia resumed gas supplies to Europe, but stock markets were jittery ahead of a European Central Bank policy meeting where the euro’s guardian is expected to announce its first rate hike in over a year announce decade.
About halfway through the session, London’s FTSE 100 and Frankfurt’s DAX index were both down almost 0.5 percent, while Paris’ CAC 40 was flat. In Italy, where Prime Minister Mario Draghi resigned, the FTSE MIB fell nearly 2%.
“The euro is on the rise… recouping some of the previous session’s losses against the dollar,” said ActivTrades analyst Ricardo Evangelista.
“Russia has resumed gas supplies to Europe via the Nord Stream pipeline, which is positive for the single currency. However, euro bulls’ relief was limited as the ECB is expected to announce its first interest rate hike in years later today.”
Russia restored critical gas supplies to Europe through Germany via the Nord Stream pipeline on Thursday after 10 days of maintenance, but uncertainty remained over whether the Kremlin would still spark an energy crisis on the continent this winter.
– Dress more aggressively? –
ECB observers are divided on the magnitude of the expected rate hike. Until recently, most market participants had been betting on a quarter-point rise.
However, “a larger hike would make sense in the current high-inflation scenario, but could also raise doubts about the eurozone’s growth prospects and increase the risk of fragmentation in the periphery,” said ActivTrades analyst Evangelista.
Markets.com analyst Neil Wilson said there had been “some rumors of a double 50 basis point hike, with markets quick to price in more aggressive tightening and lifting the euro off its multi-year lows.
“However, I believe that it is not in the nature of the ECB to get out of hand and tear up the guidelines that it issued a few weeks ago.”
The situation was further complicated by the news of Draghi’s resignation and the resulting political instability in Italy.
“Political unrest in Italy will keep the ECB at bay,” Markets.com’s Wilson said.
“It seems all too fitting that on the very day that the ECB is raising interest rates for the first time in more than a decade, Mario Draghi, the man who ‘saved’ the euro, and that Italy’s economic woes are ending his sword will fall that his policy as head of the ECB has not been resolved.”
In commodity markets, oil prices extended losses – with WTI below $100 – after data showed US inventories rose more-than-expected last week as Americans chose not to pay for expensive gasoline.
The numbers come despite being at the peak of the high-demand summer driving season.
– Key figures at 1000 GMT –
London – FTSE 100: down 0.4 percent at 7,232.57 points
Frankfurt – DAX: minus 0.3 percent at 13,236.15
Paris – CAC 40: up 0.3 percent to 6,203.06
EURO STOXX 50: UNCHANGED at 3,584.78
Rome – FTSE MIB: down 1.6 percent at 21,010.50
Tokyo – Nikkei 225: up 0.4 percent at 27,803.00 (close)
Hong Kong – Hang Seng Index: down 1.51 percent at 20,574.63 (close)
Shanghai – Composite: down 1.0 percent at 3,272.00 (close)
New York – Dow: up 0.2 percent at 31,874.84 (close)
Euro/dollar: rise to $1.0185 from $1.0175 on Wednesday
Pound/dollar: DOWN at $1.1952 from $1.1975
Euro/Pound: UP at 85.22p from 84.96p
Dollar/yen: rise to 138.70 yen from 138.26 yen
West Texas Intermediate: DOWN 4.3 percent to $95.55 a barrel
North Sea Brent Crude: DOWN 4.1 percent at $102.50 a barrel
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