European stock markets ended the week down as the euro extended its gains on Friday after the European Central Bank (ECB) said it would reassess its monetary policy stance in the fall, fueling talk that the age of cheap money was coming to an end.
Eurozone markets on Friday slumped more the 1.5 percent, while Britain’s FTSE 100 slipped 0.47 percent to 7,452.91, also dragged lower by a weaker trading on Wall Street following mixed corporate earnings reports there and as investors took profit after a healthy week. The FTSE rose 1 percent from a close of 7,378.39 on July 14.
Germany’s DAX on Friday lost 1.7 percent to close at 12,240.06, falling 3.1 percent from 12,631.72 a week earlier, while France’s CAC 40 shed 1.6 percent to 5,117.66, a weekly decrease of 2.2 percent from 5,235.31.
In addition, traders were spooked by reports that the special counsel probing US President Donald Trump’s links to Russia would also investigate his business dealings.
“As we had expected, the euro continued its upsurge yesterday, even as the European Central Bank tried to appear as dovish as it possibly could in the current circumstances,” Forex.com analyst Fawad Razaqzada said.
ECB President Mario Draghi “diverted the attention away from the appreciating single currency at his press conference. The market interpreted this as a sign that Draghi and his ECB colleagues are not too concerned about the impact of the euro on eurozone exports,” Razaqzada said.
Draghi on Thursday tried to play down talk that the bank is preparing to wind down its 60 billion euro (US$70 billion) per month asset-buying scheme, saying inflation remained tepid.
However, Draghi added: “We simply said that our discussions should take place in the fall, or in autumn, since we are in Europe.”
While Draghi tried to remain guarded, traders took that to mean the bank would soon announce a “tapering.”
“The ECB is certainly preparing to unwind its asset purchases program starting from September, yet has no incitement to announce it before the decision date, given that the pricing happens almost instantaneously and a premature announcement would jeopardize the performance of the QE [quantitative easing] program,” LCG analyst Ipek Ozakardeskaya said.
Analysts said the single currency had also been given support by Trump’s ongoing travails.
Bloomberg News said former FBI director Robert Mueller, the special prosecutor looking into allegations Trump’s campaign worked with Moscow to sway last year’s US presidential election, would look into past transactions involving the tycoon’s firms and Russians in the past.
“Just last week, President Trump said expanding the investigation beyond Russia would be out of bounds, so with Mueller broadening the inquisition into Trump’s business dealings, US political risk could move to a whole new level as this foxtrot plays out,” Oanda Corp senior trader Stephen Innes said.
Additional reporting by AP
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