Euro rebounds as German Finance Minister pulls back ECB doves

Claire Hogarth28/Aug/2014Currency Updates

GBP

The dearth of macro data from the UK market led sterling to make only nominal gains on the dollar by close of play, whilst hitting two week highs against the euro. GBP/USD appeared to be a range bound market with the lack of news, solidifying the pound’s slight recovery following Monday’s five month low against the dollar. This implies the market is now satiated that it has priced in last week’s falling wage and inflation data that was announced alongside the Bank of England’s vote split.

Today we have minor data relating to House Prices and the British consumer confidence report. The market is expecting an up-tick from -2 to -1, but this reading is unlikely to reach positive territory until the issue of sluggish wage growth is resolved.

EUR

The single currency rebounded from yearly lows to gain 0.2% on the dollar yesterday. This followed the German Finance Minister Wolfgang Schaeuble’s comments to a German newspaper that Draghi’s speech at Jackson Hole had been ‘over-interpreted.’ Schaeuble clarified that speculation of an ECB monetary stimulus package at next week’s meeting would be dependent on Friday’s August inflation report indicating risk of deflation. Ultimately both Draghi and the ECB can be seen to be turning more dovish, even if it is to a lesser extent than the market saw it last week at Jackson Hole.

The euro’s rally held in spite of a disappointing German consumer confidence survey report for September. The reading fell for the first time in 18 months with a figure of 8.6, against a projected 9.0 up from 8.9, though this remains a relatively strong figure. The report noted the intensifying impact of geo-political events in Iraq, Israel and especially the Ukraine/Russia conflict on consumers’ expectations, as sanctions on major Russian institutions are already taking their toll on German exports.

Comments from the Italian economy minister speculating that the Eurozone’s third largest economy needs to reduce its growth forecasts once again following sub-par consumer data, had similarly little impact on those traders pulling-back from bearish euro positions.

Today we have key data from Germany with unemployment figures for August and its CPI data for the month and year to date, a key indicator for Friday’s Eurozone inflation number.

USD

The greenback slipped against a basket of its major trading pairs, falling 0.2 on aggregate on the rest of the G10 and the Mexican Peso due to a lack of meaningful data. US mortgage applications were up to 2.8% from 1.4% whilst oil stocks surprisingly fell, though neither data point had significant market impact.

Plenty of key data points from the States today however, with initial and continuing jobless claims into mid-August, personal consumption expenditure, and GDP price index – which reflects inflationary pressures relating to goods and services – bundled for release alongside the crucial Q2 GDP figure, investors are anticipating a significant improvement. The market is calling 4% growth following Q1’s shocking -2.1%.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.