Euro dips again as ECB action looms
01/Dec/2015 • Currency Updates•
The Euro remained under pressure as markets opened for the week yesterday, falling to yet another seven month low against the US Dollar as investors await the European Central Bank’s December monetary policy meeting on Thursday.
The ECB looks set to increase its monetary stimulus measures this week, with many UK businesses looking to hedge their currency exposure and prevent losses from the expected depreciation of the Euro.
The Pound touched its lowest level since April following comments from Bank of England policymakers over the weekend, before recovering as the day progressed to finish higher against the US Dollar. This was possibly compounded by some relatively weak housing data in the US economy, which comes ahead of the crucial labour report on Friday afternoon.
Today bodes to be a relatively busy day of currency trading. Manufacturing growth in the Eurozone, UK and US will all be in focus, and could provide evidence as to whether the China-led global economic slowdown is continuing to hamper economic performance in the major economies.
Major currencies in detail:
Sterling fell to a seven month low against the US Dollar yesterday, although recovered to end the session 0.1% higher.
The Pound was weighed down yesterday morning by comments over the weekend from Jan Vlieghe, the new member of the Bank of England’s Monetary Policy Committee . Vlieghe suggested that he was in no rush to vote for an interest rate increase, claiming there first needed to be a stabilisation or improvement in the UK’s economic growth. He described the effect of strong Sterling on monetary policy as “huge”.
Elsewhere, mortgage approvals increased moderately in October according to the Office for National Statistics, up by around 600 to 69,630. This is another clear sign of an improvement in housing market conditions in the UK.
As well as the monthly manufacturing PMI this morning, the Bank of England will also be releasing its Financial Stability Report at 9.30am, although these releases will likely play second fiddle to the ECB this week.
The single currency fell again yesterday, down by 0.2% against the US Dollar as investors continue to bet on ECB easing.
There was some tentatively encouraging data out of Germany yesterday. German inflation figures suggested that some inflationary pressures were returning to Europe’s largest economy, after the consumer price index rose by 0.1% in November from flat the month previous.
By contrast, there was a slowdown in price growth in Italy after inflation printed negative on a monthly basis for the fifth month this year.
Attention this week is exclusively on the ECB meeting on Thursday. We expect an expansion in their asset purchases from 60 million Euros to 80 million Euros, and a cut in the deposit rate to -0.4%. This should continue to keep the Euro under pressure over the coming months.
German and Eurozone wide unemployment this morning will be in focus, although the single currency will continue to be driven by ECB expectations over the next couple of days.
The US Dollar index rose by 0.1% to an eight-and-a-half month high, with the currency also hitting a fresh multi-year high in trade weighted terms yesterday.
The Greenback continues to benefit from the expected ECB QE expansion later in the week, with traders now seeming to overlook relatively weak US data, and focus more on communications coming out of the central banks ahead of the December FOMC meeting.
Pending home sales came in below forecast yesterday, rising by just 0.2% in October. This is another sign that the US housing market is losing momentum after strong gains earlier in the year. While this was the first monthly increase in three months, it was well below most economists’ expectations.
Earlier, the Chicago manufacturing PMI slowed to 48.7, representing a contraction.
The ISM manufacturing PMI at 3pm London time is the highlight in US trading today.
Rest of the world
The IMF confirmed yesterday it was approving the Chinese Yuan to be included into its Special Drawing Rights (SDR) currency basket. IMF chief Christine Lagarde suggested the inclusion of the Yuan as a reserve currency is in recognition of the country’s global economic power.
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