The euro weakened on Thursday after European Central Bank policymakers expressed concern over its appreciation this summer.

The euro fell 0.5 per cent to $1.1797 on Thursday, following a Financial Times report that several members of the ECB’s governing council, which will meet next week to discuss monetary policy, had expressed concerns over the currency’s rise against the dollar.

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, and they will rely more on jawboning to dampen euro strength for now,” said Lee Hardman, a currency analyst at MUFG. “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 1.1 per cent in early trading on Thursday, extending the benchmark’s strong gains from a day earlier. A weaker euro helps the bloc’s stocks appear cheaper to outside investors and supports European exports. London’s FTSE 100 added 0.8 per cent.

The euro briefly breached $1.20 against the dollar this week but retreated after ECB chief economist Philip Lane said that “the euro-dollar rate does matter”. Analysts and investors see the $1.20 level as something of an unofficial level that causes angst among policymakers.

The stronger euro, which has risen from about $1.08 in mid-May, has been a reflection of better growth prospects for the region off the back of EU leaders agreeing on a pandemic recovery fund that included the unprecedented mutualisation of debt. A Federal Reserve shift to allow for US inflation to rise above 2 per cent has also contributed to the common currency’s strength, analysts have said.

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The fall in the euro 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 0.4 per cent on Thursday against a basket of six currencies including the euro.

The strong dollar weighed on commodities. Brent crude, the international oil price benchmark, fell 0.5 per cent to $44.21 a barrel, while gold was 0.7 per cent lower at $1,930 per troy ounce.

In Asia-Pacific, stocks were mixed after data indicated that activity in China’s services sector grew again in August.

Performance for China and Hong Kong-listed stocks trailed the rest of the region with China’s CSI 300 and the Hang Seng index falling 0.6 per cent.

Japan’s benchmark Topix index climbed 0.5 per cent and Australia’s S&P/ASX 200 rose 0.8 per cent, while South Korea’s Kospi was up 1.3 per cent.

The Caixin services purchasing managers’ index for China, which came in at 54 for August, was essentially unchanged from July’s level and 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 as orders increased and prices rose.

“Improvement in employment in the post-epidemic era requires longer term market recovery and longer term stability of business expectations,” said Wang Zhe, senior economist at Caixin Insight Group.

The positive mood in most of Asia-Pacific followed a solid showing from Wall Street, where the S&P 500 closed 1.5 per cent up at another record high following reports that the White House and Democrats in Congress were discussing an extension of support for unemployed Americans.

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Futures tipped US stocks to edge down 0.2 per cent when trading begins on Wall Street later in the day.

Via Financial Times