FX round-up: Euro boosted by ECB bank lending survey

Although it caused European equities to head south, an encouraging bank lending survey from the European Central Bank provided the single currency with a small boost as it scaled back expectations of further stimulus from the ECB this week.

The latest bank lending survey showed credit standards for Eurozone companies eased more than expected in the third quarter as banks made use of the ECB's asset-purchase programme to grant loans.

The survey found banks lowered their credit standards as they became increasingly competitive, and the net percentage of banks reporting an easing of credit standards on loans to firms in the third quarter was -4% from -3% in the second quarter.

Market participants took the survey to mean the ECB would see no need for further stimulus, expectations for which had been mounting ahead of Thursday’s ECB meeting.

The news lifted the euro, which by 1400 BST was trading up 0.2% against the pound at £0.7343 and 0.3% higher versus the greenback at $1.1367.

Meanwhile, the pound received a brief lift from comments by lone hawk Ian McAfferty, the only member of the Monetary Policy Committed to vote for higher interest rates in the past three meetings.

He said the BoE should begin raising rates now to ensure a gradual and steady path.

In a speech at Bloomberg’s headquarters in London, McCafferty said: “If we on the MPC are to achieve our ambition of raising rates only gradually, so as to minimise the disruption to households and businesses of a normalisation of policy after a long period in which interest rates have been at historic lows, we need to avoid getting behind the curve."

Sterling regained the 1.55 mark against the dollar on the back of his comments. By early afternoon, the pound was up 0.1% at $1.5481.

“Sterling bulls gained some inspiration in Tuesday’s European session as a result of a hawkish BoE McCafferty who highlighted the risks of delaying a rate rise in the UK,” said FXTM research analyst Lukman Otunuga.

“Although his argument about the UK economy being left behind the curve was strong, the string of negative PMI releases in September combined with the recent deflationary CPI reading in October offers an even more compelling argument as to why a UK rate hike may be held off until the middle of 2016.”

At 1400 BST, the dollar was trading up 0.2% against the yen at JPY119.75.