FX round-up: ECB should increase QE if necessary, IMF says

Another slide in Chinese stocks sparked a wave of risk aversion that swept across all asset classes on Monday.

Sterling came under selling pressure as investors moved to unwind some of their 'carry trades' in the euro ahead of Wednesday’s US FOMC meeting.

Versus the European single currency the pound was weaker by 0.65% to reach 0.7125 by the end of trading.

Against the US dollar on the other hand the pound was to be seen 0.31% higher by the close to reach 1.5561, despite the release of better-than-expected data on US durable goods orders.

The disclosure by the Swiss National Bank that it had intervened last week to brake strength in the country’s currency was cited by analysts at Credit Suisse as another factor behind the rise seen in euro/dollar.

That currency pair ended the day higher by 0.99% to 1.1087 after hitting an intra-day high at 1.1128.

Better than expected readings on German business confidence and euro area money supply also contributed to the firm tone to the euro.

Nonetheless, late in the day the International Monetary Fund warned the euro area’s medium-term prospects were “less bright” than for the next two years, due to several factors including “high unemployment, large corporate debt and rising non-performing loans in the banking system”.

A regards Greece – and now lower risk of “spillovers” or contagion – the IMF said that the European Central Bank “should stand ready to deploy, and if necessary adapt, the full arsenal of available instruments”.

“The ECB in particular should ensure that banks continue to have access to ample liquidity and maintain orderly conditions in sovereign debt markets. If financial conditions tighten significantly, the ECB should consider further loosening monetary policy through an expansion of its asset purchase program.”

The Washington-based lender also called for the European Central Bank’s programme of quantitative easing to be implemented in full.

Dollar/yen retreated 0.41% to settle at 123.31 by the end of the day.

The Aussie drifted lower by 0.05% to 0.7278.