Euro dips as investors eye further ECB monetary easing
10/Nov/2015 • Currency Updates•
Following last week’s sizable currency movements as a result of the Bank of England’s Monetary Policy Committee meeting and US labour report, this week began relatively more subdued, with little in the way of major economic releases. Hence businesses are not exposed to the same volatility in the markets this week as they were on Thursday and Friday, when GBP/USD, for example, hit 1.50 for the first time since April this year.
However, the single currency slipped from earlier gains versus the US Dollar yesterday, following a report released by Reuters that suggested policymakers in the Eurozone were beginning to form a consensus to cut its interest rate on deposits even further into negative territory.
This, in our view, continues to highlight the divergence in monetary policy stances between Eurozone policymakers and the Federal Reserve in the US, and will likely lead to long-term Euro weakness.
With Governor of the Bank of England Mark Carney’s inflation report hearings now moved to next week, economic announcements will be relatively light today, with no major data releases in the three main economies.
This week currencies continue to be driven by expectations for interest rate hikes and, in the case of the ECB, further monetary easing.
Major currencies in detail:
Sterling clawed back some of its losses from last week, following a dovish Bank of England and strong US labour report that sent the Pound to its weakest position since April. The UK currency ended the London trading session 0.3% higher versus the Greenback despite no major economic data out of the UK.
Currency traders and analysts alike continued to push back expectations for an interest rate hike in the UK further into the future on Monday after last week’s dovish Bank of England announcements. Meanwhile, Prime Minister David Cameron spoke at a CBI event on the subject of European Union membership. Cameron opened up the possibility of an exit from the EU by suggesting that reforms would need to take place in order to justify the UK’s membership.
Attention among Sterling traders this week will be on the labour report and speech from Governor of the Bank of England Mark Carney on Wednesday morning.
The Euro dipped by 0.1% against the US Dollar on the back of expectations that the ECB will cut its deposit rate.
The report released by Reuters showed that discussions leading into the ECB’s next meeting in the first week of December are not about whether the central bank should cut its deposit rate, but rather by how much.
Elsewhere, ECB member Coeure suggested the Governing Council would not make decisions based on the Federal Reserve while also claiming the situation in the Euro-area is considerably more robust than it was a couple of years ago.
In terms of economic data, the trade surplus in Germany narrowed in September. A modest 2.6% increase in exports was offset by a much larger-than-expected rise in imports by 3.6%. While an increase in imports in Europe’s largest economy is encouraging, it failed to allay concerns that a slowdown in emerging market economies, particularly China, is weighing on the overall Eurozone economy. And investor confidence rebounded to a three-month high 15.1, according to Sentix.
With little in the way of economic data in the Eurozone today, attention will switch to Wednesday, with the President of the ECB Mario Draghi speaking at the Bank of England’s 2015 Open Forum event in London.
The US Dollar dipped marginally against its major peers on Monday, following last week’s sizable gains that took the currency to a six-and-a-half month high. The US Dollar index declined by 0.1%.
The Federal Reserve’s Labour Market Conditions Index, which represents a combination of 19 labour market indicators, rose modestly last month. The index climbed by 1.3 to 1.6, its highest level since August.
On the topic of a Fed hike, another Fed official, Eric Rosengren, suggested that a December rate increase would be an appropriate time to raise rates. He claimed there had been “real improvement” in the economy with last week’s labour report “very good news”.
Today will see mostly second-tier economic releases out of the US economy. Export and import prices at 1:30pm London time will be followed by wholesale inventories at 3:00pm. Most volatility will continue to surround interest rate hike expectations.
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