Euro nosedives amid increasing ECB stimulus speculation

Claire Hogarth22/Oct/2014Currency Updates

Yesterday was a slow data day as the market prepares for a frantic days trading today with the release of the Bank of England MPC minutes, US Consumer Price Index and the Bank of Canada’s interest rate decision. Despite this, the Euro suffered one of its worst trading days in the past couple of weeks and the US Dollar Index rose substantially after its recent period of decline.

GBP

Sterling rallied again on the Euro, appreciating 0.5% and regaining ground lost over the past couple of weeks after it fell 1.15% against the single currency in the past fortnight. This was despite UK public borrowing increasing again, with 10 year bond yields showing a slight improvement.

This morning will see the release of the Bank of England minutes from the October MPC meeting and the disclosure of the vote on an interest rate movement. While two of the nine members voted for an interest rate hike in August and September the general consensus from the central bank has been largely dovish this month amid weak global growth and lower than targeted inflation. With many expectations pushing the inevitable hike back from original forecasts, the minutes of the meeting may give traders greater insight into when this hike will take place.

EUR

The single currency plummeted on the Dollar during trading on Tuesday, depreciating by 0.65% despite a quiet data day within the Eurozone.

This decline was amid speculation that the European Central Bank will expand stimulus in order to encourage growth within the Eurozone as the ECB bought Italian covered bonds for a second day as part of President Draghi’s plan to boost lending. This after Monday saw the governing body buying short dated French notes and Spanish securities. According to Reuters the ECB could make a decision on adding corporate bond purchases to its stimulus measures as soon as December. Attention will now be firmly focused on December’s ECB policy meeting for further indication on whether this will be the case.

With the Eurozone economy heading towards a potential triple dip recession the markets will be hoping that these new measures are introduced, although this could see the ECB clashing with Germany, the region’s largest economy, against such measures despite the country showing a lack of growth during Q3.

USD

Greenback stemmed the recent downward trend and rose 0.5% against its major peers after falling in London and New York trading on Monday.

Some positive news for the US economy today gave the greenback a boost as Existing Home Sales came in 2.4% up MoM in September at 5.17m, well above expectations. While historically a very volatile number, this release pushed the US Dollar Index towards its highest point in the past week having declined by more than 1.6% in the previous fortnight. The US currency was given further support as the Redbook Index, a measure of general merchandise retail sales, increased MoM by 0.1% and YoY by 4.1%, both improvements on previous.

A busy day in the US today as a host of announcements and releases are sure to cause volatility in the global markets throughout this afternoon. At 12:00pm London time the Mortgage of Bankers Association will be releasing its Mortgage Applications, while at 1:30pm the US Bureau of Labor Statistics will be announcing the inflation figures for September.

Rest of the world

Australia’s Dollar rose by as much as 0.4% during London trading yesterday after better than expected data came out overnight in the country’s major trading partner, China, with GDP expanding by 7.3% YoY in Q3 and by 1.9% QoQ. While this data represents a further decline in GDP growth that has stemmed as far back as 2010, the data came in 0.1% better than expected.

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Written by Claire Hogarth

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