© Reuters.

(Bloomberg) — European equities slipped on Thursday amid worries over the impact of a stronger euro after the currency surged on signs the European Central Bank isn’t panicking about its recent rally.

The Index closed 0.6% lower in London, with mining and construction sectors pacing the drop. The euro rose 0.7% to $1.1880 after ECB President Christine Lagarde avoided expressing concern over the exchange rate, and stated repeatedly that the common currency was not a “policy target for us.” The outperformed, down 0.2% as the pound sank against the U.S. dollar on fears of a no-deal Brexit.

“The ECB only gave a minor nod the euro’s appreciation, mentioning only that it is part of the flow of information that the ECB assesses,” said Joost van Leenders, senior investment strategist at Kempen Capital Management. “Lagarde stressed that the euro appreciation was discussed extensively during the Council meeting and pointed out that the exchange rate had not been mentioned in previous introductory statements, but this failed to turn market sentiment on the euro.”

That, combined with a resurgence of Covid-19 cases in Europe and the prospect of new pandemic-related restrictions, means investors are facing a dilemma over whether to take profit on the equity rally or to stay invested.

“Investors still have a lot of dry powder” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “We are constructive for the remainder of the year and favor cyclical stocks and in particular European small caps.”

“The tech selloff was a healthy correction in my view given the fast and strong rise in August,” he said. “In the long run, tech stocks remain still very attractive for many investors given their strong earnings growth and that most of them are still supported by share buybacks compared to the rest of the market.”

©2020 Bloomberg L.P.

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