HONG KONG: The euro held its dollar gains in Asia on Friday after the head of the European Central Bank said policymakers would begin re-evaluating its stimulus in the autumn, fuelling talk that the age of cheap money was coming to an end.
However, regional markets struggled to end the strong week on a positive note as profit-takers moved in and traders were spooked by reports the man probing Donald Trump’s links to Russia will also investigate his business dealings.
The news is the latest to dent confidence in the president’s ability to push through promised market-friendly reforms, which had helped fire a global surge in the months after his November election win.
ECB boss Mario Draghi on Thursday tried to play down talk the bank was preparing to wind in its 60 billion euros ($69 billion) a month asset-buying scheme saying inflation remained tepid.
However, he 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’s indication that it will discuss possible changes to its bond buying program over coming months has been taken as confirmation that it’s likely to begin tapering by early next year,” said CMC Markets chief market analyst Ric Spooner in a commentary.
The euro — already on the march against the dollar as the eurozone economy picks up — ploughed one percent higher Thursday to near two-year highs and in Asia managed to hold its ground, buying $1.1630. It is also at highs above 130 yen for the first time since February 2016.
Fear of political paralysis
Spooner added that the single currency had also been given support by Donald Trump’s ongoing travails.
“The immediate concern for markets is the potential for a state of political paralysis where the Trump Administration is left without the political capital to achieve its tax reform and infrastructure spending programmes,” he said.
Bloomberg News said Robert Mueller, the special prosecutor looking into claims Trump’s campaign worked with Moscow to sway the 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 whole new level as this foxtrot plays out,” said Stephen Innes, senior trader at OANDA.
Most Asian equity markets slipped into the red on Friday, with profit-taking also acting as a drag after a healthy July so far.
Tokyo was down 0.3 percent by the break, Hong Kong slipped 0.1 percent by the break after a nine-day rally, while Shanghai slipped 0.2 percent.
Sydney eased 0.8 percent, Seoul was flat and Taipei shed 0.5 percent, while Manila and Jakarta also retreated.
But while the investigation continues to drag on market sentiment, upbeat earnings and a positive global economic outlook have kept investors broadly upbeat, with all three main New York indexes sitting around record highs.
Key figures around 0230 GMT
Tokyo – Nikkei 225: DOWN 0.3 percent at 20,093.57 (break)
Hong Kong – Hang Seng: DOWN 0.1 percent at 26,726.67
Shanghai – Composite: DOWN 0.2 percent at 3239.46
Euro/dollar: DOWN at $1.1630 from $1.1631 at 2030 GMT
Pound/dollar: DOWN at $1.2962 from $1.2972
Dollar/yen: UP at 112.00 yen from 111.94
Oil – West Texas Intermediate: UP four cents at $46.97 per barrel
Oil – Brent North Sea: DOWN four cents at $49.34
New York – DOW: DOWN 0.1 percent at 21,611.78 (close)
London – FTSE 100: UP 0.8 percent at 7,487.87 (close)