Euro heads higher as ECB heads for the exit

The euro climbed for a third day and stocks slipped to a month low on Thursday, as traders waited for formal confirmation from the European Central Bank that will take its biggest step yet in unwinding years of loose monetary policy.

Banking stocks were also in focus as Europe’s Deutsche Bank <DBKGn.DE > and Barclays (BARC.L) both tumbled after results, and South Africa’s markets lurched lower again after its budget on Wednesday had rattled investors. 

In a pre-ECB appetiser, Sweden and Norway’s central banks both kept their interest rates on hold. Their currencies barely budged though as attention remained firmly on a euro camped at a 1-week high of $1.1820 and up 12.5 percent for the year. [/FRX] 

The ECB will announce its policy decision at 1145 GMT and hold a news conference at 1230 GMT.

It is expected to say that from the start of next year it will be pumping either 30 or 40 billion euros a month into euro zone bond markets, rather than the current rate of 60 billion a month. 

Markets will also be looking at how long it plans to maintain that new rate and for any tweak in language on when it may start actually raising its currently negative interest rates.

“The pace they decrease the bond buying is the important factor, I would say they cut (the purchases) by 20 billion (a month) considering how the market is,” said SEB investment management’s global head of asset allocation, Hans Peterson. 

European bonds, which like other global fixed income markets have seen a selloff over the last week, remained subdued. 

Benchmark German Bund yields DE10YT=TWEB hovered at just over 0.47 percent after U.S. Treasury yields US10YT=RR had hit a seven-month high of 2.4750 percent overnight. [GVD/EUR]

European shares struck 4-week lows too before they managed to steady. 

While bank stocks .SX7P were the main drag, former mobile phone giant Nokia (NOKIA.HE) was the biggest individual faller as weak earning from its now mainstay networks equipment business sent its shares down as much as 14 percent. [.EU]