Euro, dollar held back by dovish central banks

The euro was recovering losses on
Tuesday (September 24th) after a fall in the single currency on
Monday that was sparked by the European Central Bank (ECB)
saying it was ready to step in to keep real interest rates
down.

ECB president Mario Draghi said the
central bank would look at another long-term refinancing
operation (LTRO) to hold down market rates.

“We are ready to use any
instrument, including another LTRO if needed, to maintain the
short-term money market rates at a level which is warranted by our
assessment of inflation in the medium-term,” he told the
European parliament.

EUR/USD slipped 0.20 per cent on
Monday before recouping some ground on the greenback as markets
opened on Tuesday to trade at 1.3512.

The dollar also climbed 0.30 per
cent against the yen but gains were capped after dovish comments
from an influential Fed policymaker suggested the US central bank
is far from ready to dial back stimulus.

New York Fed president William
Dudley said the US “still needs the support of a very
accommodative monetary policy”.

The comments left the dollar index,
which measures the greenback against a basket of currencies, close
to a seven-month low plumbed last week.

Sterling opened slightly lower
against the dollar, with the GBP/USD exchange rate down 0.10 per cent at
1.6027.