Euro recovers despite dovish comments from ECB’s Draghi
13/Nov/2015 • Currency Updates•
The Euro strengthened against both the US Dollar and the Pound during London trading yesterday. The single currency recovered strongly despite earlier dovish comments from President of the European Central Bank Mario Draghi.
Draghi provided further evidence that the ECB would be expanding its monetary stimulus measures at its next meeting in the first week of December. Companies with exposure to the Euro should be mindful that, following these comments and further downward pressure on the Euro, we saw it strengthen against its counterparts, alluding to the fact that the markets have already factored in Draghi’s comments.
Across the pond we had a string of contrasting speeches on monetary policy from a number of Fed members yesterday. This caused a degree of volatility in the markets. As a result, UK and European businesses with USD exposure will have to keep an eye on how the situation evolves over the coming weeks. The overriding consensus is for an interest rate hike, with markets pricing in close to a 70% chance that rates will go up in December.
Today traders will focus on the US again, where the latest retail sales figures for October will be released at 1:30pm London time, seen as a closely watched indicator of domestic demand by the Fed.
Major currencies in detail:
A lack of significant announcements in the UK yesterday kept Sterling movement to a minimum. The UK currency ended 0.1% higher versus the Dollar.
The only data release was the RICS housing price index, which showed that house price growth in the UK picked up in October. The index increased from +44 to +49, just shy of August’s 15-month high. This acceleration in house prices continues to be fuelled by a shortage of new homes coming onto the market.
House prices rose by close to 10% in the three months to October, with the Bank of England recently suggesting that it would seek to dampen the housing market with tools other than the manipulation of interest rates.
The Conference Board’s second-tier leading economic index at 2:30pm is the only data release today, in an otherwise quiet end to the week in the UK economy. Sterling volatility is once again likely to be dependent on events elsewhere.
The Euro recovered strongly yesterday, despite dovish comments from Mario Draghi, to finish 0.4% higher against the US Dollar.
Yesterday was a relatively busy day in terms of economic data in the Eurozone. Industrial production figures pointed to a moderate dip in the Eurozone’s industrial sector performance. Despite exceeding expectations by growing 1.7% on an annualised basis, output fell by 0.3% in the month to September, with weak global demand continuing to weigh on the sector.
Inflation figures were released for France and Germany, providing further evidence of a lack of inflationary pressures in October. Both CPIs barely grew last month, increasing by 0.2% and 0.3% respectively.
A revision of third-quarter Eurozone growth this morning will be the main focal point today.
Yesterday provided a heavy schedule of Fed speakers in the US, including Chair Janet Yellen, although she failed to touch on any specific monetary policies. Mixed messages from the speeches caused the US Dollar index to end 0.3% lower.
There were some relatively dovish comments from Chicago Fed President Charles Evans, who claimed an interest rate hike in the US would make it even harder for the Fed to reach its 2% inflation target. He also suggested that only gradual rate increases would be required, in line with our expectations, given the “dissatisfying” level of inflation.
By contrast to Evans, US policymaker Jeffrey Lacker, who last month was the sole voter for a rate increase among the FOMC, suggested that recent weak inflation figures don’t imply a permanent departure from the central bank’s target. St Louis Fed President James Bullard also claimed that too long at the zero lower bound could challenge fundamental assumptions about US monetary policy.
Meanwhile, the latest JOLTS job openings for September released yesterday provided solid support for an interest rate hike, increasing above forecast to 5.526 million in September.
A series of economic data releases in the US today will be headlined by the latest retail sales figures. This will be followed by producer prices and the Reuters consumer sentiment index.
Rest of the world
The Zambia Kwacha rose by close to 10% against the US Dollar yesterday after the Zambian central bank intervened heavily in the foreign exchange market to support the currency.
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