Euro’s Outlook Darkens After ECB Court Ruling Hurts Confidence

(Bloomberg) --

The euro is heading for the worst week in a month after a surprise ruling by a German court hurt confidence in the European Central Bank’s ability to manage the region’s economic recovery.

The common currency has fallen 1.5% in three days, wiping out the previous week’s gains that came after the ECB left the door open to increasing stimulus. That is now in doubt after the ruling from Germany’s constitutional court that the ECB must justify the necessity of its bond-buying program, even though Europe’s top court has ruled in favor of it.

“Two of Europe’s top courts arguing about the legality of bond-buying in the middle of a pandemic inject uncertainty into a market that doesn’t need it and does nothing to boost confidence,” Kit Juckes, a strategist at Societe Generale SA, wrote in a note.

The euro fell 0.3% to $1.0812 by 12:45 p.m. in London, after dropping 0.6% Tuesday. Sentiment in the options market has also turned more negative on all contracts from the next week to the coming year. The risk of the currency retesting March lows around $1.0635 is growing, according to Marc Chandler, chief market strategist at Bannockburn Global Forex.

The European Commission said on Wednesday that the currency’s future could be in danger if the economic recovery was handled badly.

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