Euro regains ground ahead of crucial ECB meeting on Thursday

Enrique Díaz-Álvarez20/Jan/2015Currency Updates


Monday saw limited movement in Sterling as a lack of significant releases led to low levels of volatility. The UK currency finished the day flat against the Dollar.

Growth fears in the UK were abated somewhat yesterday after Ernst & Young upgraded its GDP forecast for 2015. The recent sharp decline in oil prices and a delayed interest rate hike have boosted their growth projections from 2.5% to 2.9%, the highest level in seven years if it were to materialise. A gradual increase in wage growth, which recently exceeded inflation for the first time in five years, could also boost growth according to E&Y. The report also suggested that inflation will average around zero for the remainder of the year, turning negative in the early months as oil prices remain low.

No data of note out in the UK today. Attention in the UK markets will be on the Bank of England minutes tomorrow morning and the release of the interest rate vote from this month’s monetary policy committee.


The single currency rebounded on Monday from an eleven year low, climbing by 0.6% on the Dollar and by 0.5% versus the Pound, as investors brace for a hectic second half of the week.

The Eurozone’s current account shrank for a second consecutive month in November. The seasonally adjusted figure declined from €19.5 billion in October to €18.1 billion and, while remaining phenomenally strong, has fallen substantially since hitting a record €30.86 billion last autumn. Such a large surplus, however, still points to both weak internal demand and the exporting prowess of mainly German companies. At about €520 billion each year, Europe’s current account surplus is now bigger than that of the Chinese economy in the 2000s, leading to a “euroglut”, in which domestic demand has plunged since the Eurozone crisis. In yesterday’s other main release, construction output remained close to static in November, increasing by a mere 0.1% MoM to register an annualised 2.2% increase.

Movements in the currency markets this week will be driven almost exclusively by speculation and fall-out from the ECB monetary policy statement on Thursday. In the meantime, economic sentiment data out in Germany at 10am UK time could cause additional volatility.


The national holiday in recognition of Martin Luther King Day made for a quiet start to the week across the pond. The US Dollar traded within a narrow band of its peers due to the absence of data releases or announcements, with the US Dollar index finishing the day 0.3% down.

As fall-out from last week’s Swiss National Bank shock decision continues, markets appeared to be adopting a general theme of risk reduction on Monday. Investors are generally reducing risk in the FX market, with a lessening in exposure to long-Dollar trades causing the US currency to dip slightly as markets opened for the week.

A handful of second-tier data releases today may cause some market movement. The National Association of Home Builders Housing market index at 3pm London time is likely to cause most volatility.

Rest of the world

The Danish Krone came under the spotlight on Monday after the Danish National Bank lowered its deposit rate further into negative territory in order to defend its Euro peg following the Swiss National Bank’s decision to abandon its currency ceiling last week. The deposit rate was slashed from -0.05% to -0.2% amid speculation that Denmark could be forced to follow Switzerland and remove its peg, despite Economic Minister Morten Oestergaard stating it remained “secure”. Elsewhere, the Nigerian Naira weakened to a record low ahead of today’s interest rate decision.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.