Draghi’s dovish comments put pressure on the Euro
18/Nov/2014 • Currency Updates•
A mostly quiet day in global markets yesterday as traders prepare for a busy week ahead. Focus will be on Wednesday as the Bank of England and Federal Reserve both release the minutes from their recent monetary policy meetings.
A lack of major data releases in the UK on Monday caused Sterling to trade within a narrow band with the Dollar, falling slightly by 0.1% during trading.
In an interview for The Australian newspaper, Bank of England Governor Mark Carney warned “huge disinflationary forces coming”. This after the Bank of England cut its inflation forecast last week in its quarterly inflation report from 1.8 to 1.2 for 2015. Meanwhile, Haldane commented that he would be watching economic developments “like a dove”, suggesting that the central bank appears to be in no hurry to raise interest rates. Elsewhere, the Rightmove housing price index for this month registered its highest annualised increase since May of 8.5%, despite falling by 1.7% MoM.
Plenty of significant releases in the UK this morning centred on the inflation data for October at 9:30am. After falling to a five year low of 1.2% in September, policy makers will be hoping for a more positive reading, with a slight increase to 1.3% predicted.
Having risen substantially by 2% on the Pound last week, the single currency fell on Monday after a dovish speech by ECB President Mario Draghi, finishing the day 0.35% down on Sterling and ending a run of four consecutive days of appreciation. The Euro fell by 0.45% on the Dollar, despite some weak US data.
Speaking at the European Union’s Parliament in Brussels, Draghi reiterated the central bank’s commitment to using additional unconventional instruments to stimulate growth if required, including the buying of government bonds. Some analysts believe further negative data in the Eurozone could see this take place as early as December. Draghi also highlighted the possible downside risks for the ECB’s inflation outlook, putting pressure on the Euro against its major peers.
Volatility expected for the Euro today with the announcement of economic confidence data by ZEW at 10:00am London time, both for Germany and the Eurozone.
The US Dollar strengthened throughout the day yesterday despite a number of underwhelming announcements, with the US Dollar index climbing by 0.55%.
The Federal Reserve’s measure of industrial production fell by more than anticipated to 0.1% in October. Meanwhile, capital utilisation, the percentage of US production capacity being used, fell unexpectedly to 78.9%, down from 79.2%. Further disappointing data announced by the Fed during afternoon trading as the New York Empire State manufacturing index also came in below expectations at 10.16.
Today sees a string of second-tier releases unlikely to cause any major movements in the FX markets. The US Bureau of Labor Statistics will be announcing the Producer Price indices for October at 1:30pm GMT, followed by the NAHB Housing Market index at 3:00pm.
Rest of the world
Russia’s Ruble declined for a third consecutive day after a further slide in the price of crude oil and a standoff over Ukraine boosted portfolio outflows from Russia. The currency is one of the world’s worst performers this month having now lost 14% of its value.
The Brazilian Real advanced for the first time in five days, climbing by 0.2% after the central bank stepped up the rollover of swaps supporting the currency. Elsewhere, the Yen softened by 0.8% on the Dollar after it was announced that Japan had slid into a technical recession with its economy contracting for the second consecutive quarter, this time by 0.4%.