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Euro Advances After ECB Minutes Show Growing Calls Among Policymakers Towards Normalization

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The euro climbed against its major counterparts in the European session on Thursday, erasing its early losses, after minutes from the European Central Bank’s March policy meeting showed that several policymakers observed that the current high level of inflation and its persistence warranted immediate further steps towards monetary policy normalization.

Members argued that the three forward guidance conditions for an upward adjustment of the key ECB interest rates had either already been met or were very close to being met, the minutes from the bank’s March 9-10 showed.

“The most appropriate timing of a first upward adjustment of the ECB’s key interest rates should be determined by the Governing Council in the light of all available data and other considerations such as prevailing financial market conditions.”

Members viewed that a longer period of above-target inflation would lead to an increased risk of an upward unanchoring of longer-term inflation expectations.

“The Governing Council could no longer afford to look through higher inflation, even if it was driven by an adverse supply shock.”

ECB policymakers agreed that the pace of net purchases previously agreed was not needed, reflecting the developments in the inflation outlook and the favourable financing conditions, the minutes showed.

According to the minutes, some members opted to set a firm end date for APP net purchases during the summer and not to make that date conditional on unfolding events, paving the way for a possible rate rise in the third quarter of this year in the light of the deterioration in the inflation outlook.

Data from Eurostat showed that Eurozone retail sales grew less than expected in February as the decline in food sales deepened.

Retail sales rose 0.3 percent month-on-month in February, slightly faster than the 0.2 percent increase in January. However, sales were slower than the expected growth of 0.6 percent.

Data from Destatis showed that Germany industrial production grew unexpectedly in February.

Industrial output grew 0.2 percent month-on-month in February, confounding expectations for a fall of 0.2 percent. Nonetheless, this was slower than the revised 1.4 percent increase posted in January.

The currency has been trading higher against its key counterparts in the Asian session.

The euro touched a 2-day high of 1.0938 against the greenback, up from more than a 4-week low of 1.0865 seen at 5:25 am ET. The pair had closed Wednesday’s deals at 1.0891. The euro is seen finding resistance around the 1.12 mark.

After falling to a 2-day low of 134.42 at 5:25 am ET, the euro firmed to a 3-day high of 135.50 against the yen. The pair was worth 134.84 when it ended deals on Wednesday. Next key resistance for the euro is likely seen around the 137.00 level.

Preliminary data from the Cabinet Office showed that Japan’s leading index declined to the lowest level in five months in February.

The leading index, which measures the future economic activity, fell to 100.9 in February from 102.5 in January.

The euro edged up to 1.0198 against the franc, following a drop to 1.0146 at 4:20 am ET. At Wednesday’s close, the pair was valued at 1.0158. The euro is likely to face resistance around the 1.045 region, if it gains again.

Data from the State Secretariat for Economic Affairs showed that Switzerland’s unemployment rate decreased marginally in March.

The unemployment rate fell to a seasonally adjusted 2.2 percent in March from 2.3 percent in February. This was in line with economists’ forecast.

The euro moved up to a 2-day high of 0.8365 against the pound, rising from a fresh 2-week low of 0.8314 it touched at 4:35 am ET. The euro-pound pair had finished yesterday’s trading session at 0.8333. Should the euro strengthens further, it is likely to test resistance around the 0.86 region.

Survey data from the Llyods Bank subsidiary Halifax showed that UK house prices grew at the fastest pace in six months in March to hit a new record high.

House prices gained 1.4 percent in March from February, when prices were up 0.8 percent. This was the fastest growth since September.

The euro regained ground against the kiwi, hitting a 3-day high of 1.5863. At yesterday’s trading close, the pair was quoted at 1.5738. The euro may challenge resistance around the 1.62 mark.

The euro climbed to 3-day highs of 1.4615 against the aussie and 1.3750 against the loonie, from Wednesday’s closing values of 1.4498 and 1.3659, respectively. Further rally may take the euro to resistance levels of around 1.49 against the aussie and 1.39 against the loonie.

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