Euro dips as Paris attacks weigh on investor sentiment
17/Nov/2015 • Currency Updates•
The major currencies were little moved on Monday as markets awaited significant economic releases later in the week, namely the Federal Reserve’s October monetary policy meeting minutes and UK and US inflation figures.
Markets continued to bet on a Fed rate hike in December yesterday, with Wednesday’s minutes expected to provide further evidence to support this claim. We’re seeing those businesses that are USD buyers increasingly looking to hedge their exposure to the currency in order to eliminate losses as a result of the Dollar’s expected rally.
The Euro remained under pressure as markets opened for the week, with some investors appearing to steer clear of the single currency and instead buy the safe-haven Swiss Franc and Japanese Yen amid uncertainty and a dip in sentiment created following last Friday’s Paris attacks. Although these worries faded somewhat as trading progressed.
An increase in Eurozone inflation, however, was subsequently overlooked, with the single currency barely moved as a result.
Tuesday looks set to be a busy day in the currency markets. Domestic businesses trading internationally should pay close attention to this morning’s UK inflation data; with any reading either side of the 0-0.2% expected growth in prices likely to cause a moderate reaction in the Pound today.
Meanwhile, companies with exposure to the US Dollar will also look to this afternoon’s US inflation figures, although absent any major surprises, this will unlikely cause significant shifts in expectations regarding the timing of the first Fed rate hike.
Major currencies in detail:
Sterling had a good session yesterday, up 0.15% against the US Dollar and 0.6% versus the Euro, although traders are instead focusing on a series of UK data releases due out later in the week.
The only data release yesterday was the Rightmove house price index, which showed that house prices declined in the month to November by 1.3%. However, this is expected to prove temporary due to high confidence and low rates.
Today Mark Carney will be presenting the Bank of England’s inflation report hearings in front of the Treasury Committee at 9:00am. Given the recent quarterly inflation report released last week, new information could be at a premium.
Economic data in the UK this week should provide a slightly better indication of how close the Bank of England is to raising interest rates for the first time since the financial crisis. Inflation at 9:30am this morning and retail sales figures on Thursday will be the main focus.
A slight dip in sentiment towards the Euro caused the single currency to fall by 0.5% against the USD yesterday.
There were tentative signs of a modest pick-up in inflationary pressures in the Eurozone yesterday, with October’s inflation figure revised marginally higher by Eurostat. The consumer price index grew by 0.1% in the month, higher than the flat reading from a few weeks ago, with core price growth also revised upwards to a two-year high of 1.1%.
Despite this improvement, inflation remains subdued and we continue to expect an expansion in the European Central Bank’s stimulus measures at its monetary policy meeting next month. The Governing Council’s meeting accounts on Thursday, and another speech from Mario Draghi on Friday morning in Frankfurt, could provide further clues.
Economic sentiment surveys from ZEW at 10:00am this morning will be the focus for Euro traders today, although the degree of Euro risk appetite following last week’s Paris attacks could continue to be a driver over the next few days.
The US Dollar edged moderately upwards yesterday, with the currency gaining by 0.35% as investors continue to put faith in a Fed interest rate hike.
There was a lack of significant economic releases in the US on Monday. The New York Empire State Manufacturing Survey, which measures business conditions for manufacturers, printed negative for the fourth straight month at -10.74. However, the second-tier nature of the data meant that the Dollar was unmoved.
Attention this week will instead be on the Fed, which is expected to shed more light on its monetary policy plans when it releases its October meeting minutes at 6:00pm on Wednesday.
A busy day of data releases will be focused on the latest inflation data at 1:30pm London time. This will be followed by industrial production and house price figures in mid-afternoon.
Rest of the world
The South African Rand touched another fresh record low on Monday with the Polish Zloty also suffering sizable losses amid risk aversion after the Paris attacks.
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