November 20, 2013 / 8:01 PM / 4 years ago

FOREX-Euro falls after report on ECB deposit rates; Fed minutes hint taper

* Fed minutes raise possibility of QE tapering in next few
    * ECB considering negative deposit rates -Bloomberg
    * Bernanke: Rates may stay near zero after bond-buys end
    * U.S. inflation unexpectedly falls in October

    By Gertrude Chavez-Dreyfuss and Daniel Bases
    NEW YORK, Nov 20 (Reuters) - The euro tumbled across the
board on Wednesday after a report that the European Central Bank
is considering negative deposit rates to boost inflation closer
to its target.
    Additional selling pressure on the euro ensued after the
release of minutes from the U.S. Federal Reserve's October
interest rate policy-setting meeting. The minutes showed many
members felt the downside risks to the economic outlook have
diminished and if data warranted it could decide to slow the
pace of quantitative easing at one of its next few meetings.
    "The (forex) market is starting to perhaps pull forward the
potential for tapering and might even put December back on the
table. I think a lot will be riding on the November labor
report," said Brian Daingerfield, currency strategist at Royal
Bank of Scotland in Stamford, Connecticut.
    Tapering of the bond purchases would lead to a rise in
interest rates, making U.S. dollar-based investments more
attractive to investors hunting for higher yields.
    Earlier, Bloomberg reported that if the ECB decides to take
the deposit rate for cash it holds overnight for banks into
negative territory, the rate would fall to -0.1 percent. The
ECB's current deposit rate is at zero. An ECB spokesperson
declined to comment. 
    The ECB cut interest rates to a record low this month, and
President Mario Draghi said the central bank was "technically
ready" for negative rates, if warranted by the economy.
    The news from Europe was in stark contrast to the latest
views by Federal Reserve policymakers.
    James Bullard, president of the St. Louis Federal Reserve
Bank, on Wednesday told Bloomberg television that recent U.S.
economic data is looking better and a "strong" jobs report for
November would increase the likelihood that the Fed may decide
to start scaling back bond buying next month. 
    "The news highlighted the opposing outlooks for monetary
policy in the euro zone compared to the U.S. where the Fed
appears on a steady path to reducing stimulus," said Joe
Manimbo, senior market analyst at Western Union Business
Solutions in Washington.
    The euro fell as low as $1.3417 on the ECB news and
Fed minutes, and last traded at $1.3428, down 0.81 percent.
Against the yen, the euro dropped to a fresh session low of
134.38 yen, off 0.84, after the Fed minutes. It
earlier touched a four-year high.
    Ulrich Leuchtmann, head of FX research at Commerzbank in
Germany, said the euro had been recovering from an unjustified
selloff since the cut in euro zone interest rates earlier this
month, but that move has run its course.
    "From a fundamental perspective it makes sense for there to
be" a rebound in the euro, he said. But "the justified
correction has run out of steam."   
    Around one-quarter of ECB council members, led by Bundesbank
chief Jens Weidmann, spoke out against the rate cut this month,
and those divisions were highlighted on Wednesday when Weidmann
said the ECB should not signal any further easing of its
monetary policy for now.  
    The dollar index, meanwhile, got a boost, rising 0.47
percent to 81.093.
    The U.S. currency had been under pressure earlier in the
global session after Fed Chairman Ben Bernanke stated in no
uncertain terms that the U.S. central bank would maintain its
ultra-easy monetary policy for as long as needed.
    Bernanke said late on Tuesday that officials wanted evidence
of durable job growth before scaling back the Fed's bond-buying
stimulus, adding that interest rates were likely to remain near
zero for a considerable time after the asset purchases end.
    A mixed set of U.S. economic data, on the other hand,
provided no clue as to when the Fed will eventually reduce its
asset purchases, with a fall in consumer prices in October
largely offsetting a faster-than-expected rise in retail sales.
    In a speech that echoed dovish comments by Janet Yellen, the
Fed vice chair who is the nominee to become the Fed chief,
Bernanke said while the economy had made significant progress,
it was still far from where officials wanted it to be.
 The FOMC next meets on Dec. 17-18.
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