Euro declines ahead of this week’s ECB meeting
20/Oct/2015 • Currency Updates•
A predictably slower start to the week for currency moves with volatility levels low due to the lack of top tier data on Monday.
All eyes are now on the significant statements from Mark Carney and the European Central Bank. This has led to many businesses taking action prior to these statement releases, in order to remove risk from the potential volatility. Especially after Sterling (against USD and EUR) recovered to strengths not seen since mid September.
Over the past year we’ve seen that these statements have caused the most dramatic and unpredictable currency movements.
Carney will be speaking at the Treasury Committee in London at 11:00am this morning. The market is not really expecting too many clues regarding a rate hike, so any that are given will be extremely significant and would cause significant moves in Sterling crosses.
Traders will, in particular, be looking to see if Carney reiterates his position that rates in the UK could go up regardless of whether the Fed hikes or not. Such a hawkish stance would likely send the GBP higher today, and be a dramatic move by the Bank Of England.
The Euro slid moderately yesterday as investors eyed up this Thursday’s monetary policy statement from the ECB, while Sterling rose against both its major peers ahead of Carney’s speech this morning.
Major currencies in detail
Sterling rose against almost all major currencies yesterday, hitting a three-week high versus the Euro and appreciating by 0.2% against the US Dollar.
The Pound continued to benefit from hawkish comments by MPC member Kristin Forbes on Friday, who claimed that interest rates in the UK would rise sooner rather than later.
Sterling traders appeared to overlook data released before markets opened, which showed house prices slowed in the year to October, according to online property website Rightmove. Asking prices for homes rose by 0.6% in the month to October and by 5.6% on an annualised basis, its slowest pace of growth since July, despite a surge in prices for first time buyers in the UK.
This week will be light in terms of economic indicator data, with retail sales on Thursday the only aspect worth noting. However, Mark Carney’s will give a speech this morning and then again on Wednesday at St Peter’s College in Oxford.
The single currency lost ground against both the Pound and the Dollar as markets opened for the week, touching a ten-day trough against the Greenback after depreciating by 0.4%.
Pressure on the Euro looks likely to persist this week ahead of Thursday’s ECB meeting. Most traders and analysts, including ourselves, expect the central bank to wait until later in the year to announce any changes to their large-scale quantitative easing programme. However, the risk of President of the ECB Mario Draghi suggesting additional easing measures or talking down the currency at the meeting, drove the Euro moderately lower yesterday.
Producer prices from Germany and the Euro-area current account data this morning could cause moderate Euro volatility. However all eyes will be on Thursday’s ECB meeting and Mario Draghi.
The Dollar rose across the board yesterday, with the US Dollar index increasing by 0.3% to a one-week high, despite losses against Sterling.
Yesterday was quiet in the US economy, with very little economic data. There was, however, some positive news on the housing front. Homebuilder confidence in the US rose to a ten-year high according to the latest survey from the National Association of Homebuilders. The monthly index increased from a revised 61 to a higher-than-expected 64 this month, its highest reading since October 2005. Confidence climbed in three of the four US regions, with builders in the west showing the greatest improvement.
Elsewhere, despite cancelling his speech due to illness, prepared remarks from Fed member Jeffrey Lacker disappointed traders by failing to touch on monetary policy.
Focus remains on the Federal Reserve this week, with investors looking to gain clues of whether the central bank will hike interest rates in 2015 or hold fire until next year. Fed members Powell and Dudley will both be speaking just after 2:00pm London time today, while Chair Janet Yellen will be speaking in Washington, although on this occasion her speech is unlikely to be on the topic of monetary policy.
Rest of the world
There was further disappointing data out of China yesterday morning after growth in the economy slowed to its lowest since 2006 at 6.9%. The Chinese Yuan slipped as a result, although the better-than-expected nature of the data meant that the losses were limited.
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