Stronger euro holds no threat to euro zone growth: Bundesbank

Bundesbank head Jens Weidmann said Europe’s policymakers must monitor currency developments closely as they seek to reduce inflation in the euro zone. (Reuters)
Updated 08 February 2018
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Stronger euro holds no threat to euro zone growth: Bundesbank

FRANKFURT: The increasing strength of the euro against other currencies such as the dollar does not threaten to slow mounting growth in the euro area, Germany’s central bank chief said.
“The recent appreciation in the euro seems unlikely to jeopardize the expansion,” Bundesbank head Jens Weidmann said in a speech.
“It is, at least in part, rather a reaction to the brighter growth prospects of the euro area,” he said.
Weidmann’s response to the stronger single currency is more relaxed than the common position of the European Central Bank, where he sits on the governing council.
“Downside risks” to growth in the euro zone “relate primarily to global factors, including developments in foreign exchange markets,” ECB President Mario Draghi said last month.
Since mid-December, the euro has gained around 4 percent against the dollar and 1 percent against the yen.
Looking back further over the past year, the single currency’s gains amount to 15 percent against the greenback and 10 percent against the Japanese unit.
As in the ECB’s common position, Weidmann acknowledges that policymakers must “monitor closely” developments on currency markets for their potential impact on the central bank’s efforts to push inflation toward just under 2 percent.
A stronger euro directly saps inflation by making imports cheaper.
By also making euro area products more expensive abroad it can indirectly slow price growth by limiting economic expansion.
But “recent research suggests the impact of exchange rate movements on inflation has declined,” Weidmann noted.
The Bundesbank chief also took the opportunity to burnish his credentials as a so-called “hawk” in favor of reducing ECB support to the economy — in the shape of mass bond purchases and low interest rates — as it strengthens.
Frankfurt policymakers have waved through more than €2.3 trillion ($2.8 trillion) of government and corporate bond purchases since March 2015, with the program currently slated to end in September once it hits around €2.5 trillion.
“If the expansion progresses as currently expected, substantial net purchases beyond the announced amount do not seem to be required,” Weidmann said.
In a question-and-answer session on Twitter, ECB chief economist Peter Praet downplayed differences on the governing council about the bond-buying scheme, saying members agree on their objectives and “discussions are more on tactics.”


Brent oil rises back above $80 as Iran sanctions loom

Updated 22 October 2018
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Brent oil rises back above $80 as Iran sanctions loom

  • The US sanctions on the oil sector in Iran are set to start on November 4
  • other producers may struggle to fully make up for the expected Iran disruption, and that oil prices could rise further

SINGAPORE: Brent crude oil prices rose back above $80 a barrel on Monday as markets were expected to tighten once US sanctions against Iran’s crude exports are implemented next month.
Benchmark Brent crude oil futures were at $80.26 a barrel at 0646 GMT, up 48 cents, or 0.6 percent, above their last close.
US West Texas Intermediate (WTI) crude futures were at $69.60 a barrel, up 48 cents, or 0.7 percent.
The US sanctions on the oil sector in Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), are set to start on November 4. The United States under President Donald Trump is trying to reduce Iranian oil exports to zero to force the country to renegotiate an agreement on its nuclear program.
US Treasury Secretary Steven Mnuchin told Reuters on Sunday that it would be harder for countries to get sanction waivers than it was during the previous Obama administration, when several countries, especially in Asia, received them.
OPEC agreed in June to boost supply to make up for the expected disruption to Iranian exports.
However, an internal document reviewed by Reuters suggested OPEC is struggling to add barrels as an increase in Saudi supply was offset by declines elsewhere.
Fatih Birol, executive director of the International Energy Agency (IEA), said on Monday that other producers may struggle to fully make up for the expected Iran disruption, and that oil prices could rise further.
Some relief may come from North America, where US drillers added four oil rigs in the week to Oct. 19, bringing the total count to 873, Baker Hughes energy services firm said on Friday, raising the rig count to the highest level since March 2015.
The US rig count is an early indicator of future output. With activity increasing after months of stagnation, US crude production is also expected to continue to rise.
Reflecting rising US crude exports, the Intercontinental Exchange said its new Permian West Texas Intermediate crude futures contract deliverable in Houston, Texas, will begin trading on Monday.
In addition to the potential for rising oil supply, the ongoing Sino-American trade dispute is expected to start dragging on demand.
“The full impact of the US-China trade war will hit markets in 2019 and could act as a considerable drag on oil demand next year, raising the possibility of the market returning to surplus,” said Emirates NBD bank in a note.
Shipping brokerage Eastport said “Chinese manufacturing is beginning to slow” and that “Trump’s proposal of slapping ... tariffs on additional ... Chinese goods from 1 January would be a further drag on trade.”
K.Y. Lin, spokesman for Taiwan’s Formosa Petrochemical Corp, a major fuel refiner, said “weaker demand in Europe and the US” was already affecting gasoline profit margins as excess fuel is being sent to Asia.