Tag Archives: Euro

Judgement Day Wednesday

Tomorrow evening we will see potentially the most crucial Federal Reserve Interest Rate Decision and FOMC statement of this year. Whilst the Federal Reserve is widely expected to maintain interest rates at their current levels, speculation has grown in recent months that they will make their first reduction to their unprecedented bond buying program this month. ‘Tapering’ has been the buzz word for the last month or two ever since Federal Reserve Chairman Ben Bernanke hinted this summer that the Fed would begin to taper its current $85 billion per month bond buying program before the end of the year.

As the state of the US economy has gradually improved over the course of this year and US unemployment figures have closed in on the Fed’s 7% target (disregarding this month’s miserable Nonfarm payrolls), expectations have grown that September will be the month that tapering will begin. The majority of market commentators had been expecting a gradual reduction to begin this month at around the $10-$15 billion mark, however with the very poor Nonfarm payrolls released earlier this month it remains plausible that the Fed will hold firm and maintain their current purchasing levels for yet another month.

Given the amount of speculation that has been afforded to this meeting we can expect to see a substantial amount of volatility surrounding the greenback in the run up to and following the release of the Federal Reserve’s decision. Should the Fed decide to maintain their current level of stimulus we could see cable advance further on its gains this week with a potential test of 1.60 upwards. A reduction of $10-$15 billion would likely hold GBP/USD steady with limited downside risk for sterling following the consistently positive data that has been released recently concerning the UK economy – enough to even suggest that we have “turned the corner” according to George Osborne. Whilst a reduction of $20 billion upwards would likely lead to significant Dollar strengthening right across the board and could see cable par its recent gains whilst 1.56 levels would likely hold off any reversal.

Tomorrow we will also see another interest rate decision however the outcome of which is considered a lot more certain and its impact far less wide-reaching. The Bank of England will release their interest rate decision and minute’s tomorrow morning at 09:30 UK time. BoE Interest rates and stimulus levels are expected to remain unchanged following the Bank of England governor Mark Carney’s comments to a Parliament Select Committee last week where he indicated that the BoE will maintain historically low interest rates for as long as necessary.

GBP/EUR is currently trading close to the 1.19 level, its highest level since the turn of 2013, with a consistent break above 1.1950 potentially signalling a return to levels above 1.20. However, until the outcome of the German Federal Elections later this month, which now seems a forgone conclusion in favour of Chancellor Angela Merkel, movement in GBP/EUR is likely to be limited. Once the German election has finally been decided we may well see a re-emergence of the Euro-Crisis that has notably been shunned from media attention in the run up to elections. A return to Euro-zone bailouts and a seemingly imminent collapse of the euro will only help push sterling back up to 2012 levels against the common currency.

ECB Rate unchanged at 0.50%

The Euro has fallen following hints from the European Central Bank (ECB) of a possible rate cut in the future. The ECB left interest rates unchanged at their historic low of 0.50% and commented that “the Governing Council expects the key ECB rates to remain at present or lower levels for an extended period of time.”

The Euro fell against the US Dollar from an earlier high of 1.3022, hitting a low of 1.2884 before recovering to 1.29.

ECB Cuts Interest Rate

As expected, Mario Draghi has just confirmed that ECB interest rates will be cut from 0.75% to 0.5%. As a result of poor economic growth, lingering recession, record high unemployment rates and recent poor inflation figures, the ECB has finally decided that an interest rate cut is necessary in order to help encourage growth in Europe. Whilst the rate cut had been expected by markets today, it remains surprising how long it has actually taken for such a decision to come about, especially given the horrendous condition of numerous economies throughout the Euro Zone.

Volatility increased significantly in the run up to the interest rate decision and remained high post data release. Immediately following the decision markets began to spike, most notably EUR/USD plummeted to 1.3115 and then rocketed back up to 1.3184 in the space of one minute. Similarly GBP/EUR dropped to 1.1789 before rallying back to 1.1813 in just minutes.

Soon after this ECB president Mario Draghi chaired a press conference regarding the ECB’s monetary policy, in which Mr Draghi gave further details as to why interest rates had been cut. It was also disclosed that the ECB would consider taking interest rates to below zero “with an open mind” which has unsurprisingly led to a further weakening of the euro right across the board. GBP/EUR is now trading at 1.1876, whilst EUR/USD has fallen to 1.3063.

When Will It End?

Surprisingly there is a reasonable amount of economic data due out today despite it being a bank holiday in many European countries. Inevitably this has turned the focus to the UK and US where we will see PMI figures from both sides of the pond today, as well as an interest rate decision and a potentially revealing FED press conference in the US this evening.

With the recent economic data coming out of the US being somewhat negative, market participants will be keen to see whether the US ISM manufacturing PMI is able to surpass expectations of a fall to 50.9 in April. Following this PMI data, this evening we will see a US interest rate decision and crucially the Fed’s monetary policy statement. Whilst interest rates are widely expected to remain at their current level of 0.25%, spectators will be keen to find out whether the FED gives any indication as to when and how speedily they may begin to reduce their bond buying program. Speculation is growing that the FED could well begin to curtail QE before the end of the year however policy makers will be keen to ensure that any reduction in monetary easing does not result in the weakening of an already fragile economy.

The UK Markit Manufacturing PMI figure was released this morning at 49.8, beating market expectations of 48.5, following which sterling immediately spiked to a daily high of 1.1819 against the euro before dropping back. Similarly cable spiked to a daily high of 1.5590 before returning to its current level of 1.5570. Following these spikes in volatility we may well now see markets trade sideways until this afternoon when the release of US PMI figures may induce further market activity.

Please find a summary of this week’s economic calendar below:

01.05.13
02:00 Chinese NBS Manufacturing PMI
07:00 UK Nationwide Housing Prices
09:28 UK Markit Manufacturing PMI
15:00 US Construction Spending
15:00 US ISM Manufacturing PMI
15:00 US ISM Prices Paid
19:00 US Fed Interest Rate Decision
19:00 US Fed’s Monetary Policy Statement and press conference

02.05.13
02:45 Chinese HSBC Manufacturing PMI
08:48 French Markit Manufacturing PMI
08:53 German Markit Manufacturing PMI
08:58 Euro Zone Markit Manufacturing PMI
09:30 UK PMI Construction
12:45 ECB Interest Rate Decision
13:30 ECB Monetary policy statement and press conference
13:30 US Initial Jobless Claims
13:30 US Trade Balance

03.05.13
02:00 Chinese Non-manufacturing PMI
09:28 UK Markit Services PMI
10:00 EU Producer Price Index
13:30 US Nonfarm Payrolls
13:30 US Unemployment Rate

Euro Zone Inflates as Does the Euro

Today is a day of inflation figures as UK, Euro Zone and US Consumer Price Index data is set to be released. So far today we have seen figures released confirming that UK inflation remains above the Bank of England’s target of 2%, with UK Consumer Price Index figures remaining unchanged at 2.8%. Euro Zone inflation has increased marginally to 1.5%, up from 1.4% in February. Following these releases, the Euro has strengthened across the board as the likelihood of an ECB rate cut has now decreased on the back of the higher Euro Zone inflation figures.

This morning’s inflation figures have had the greatest impact upon the markets thus far today, as despite German Economic Sentiment Survey data falling sharply to 36.3 this month, the Euro has still strengthened against both the Pound and the Dollar. EUR/USD has reached a high of 1.5312 so far this morning, whilst GBP/EUR fell to 1.1699 following the inflation figures release. Attention will now turn to the US this afternoon where inflation figures and housing data are set to be released. Market participants will be keen to see whether the recent poor data coming out of the US continues.
Please find a summary of this week’s economic calendar below:

16.04.13
ECB President Mario Draghi Speech
09:30 UK Consumer Price Index
10:00 Euro Zone Consumer Price Index
10:00 Euro Zone Economic Sentiment Survey
10:00 German Economic Sentiment Survey
13:30 US Consumer Price Index
13:30 US Housing Starts

17.04.13
09:30 UK BoE minutes
09:30 UK Claimant Count Change
09:30 UK Unemployment Rate
09:30 UK Average Earnings
15:00 Canadian BoC Interest Rate Decision
19:00 US Fed’s Beige Book

18.04.13
G20 Finance Minister and Central Bank Governors Meeting
09:30 UK Retail Sales
13:30 US Initial Jobless Claims
15:00 US Philadelphia Fed Manufacturing Survey

19.04.13
G20 Finance Minister and Central Bank Governors Meeting
07:00 German Producer Price Index
13:30 Canadian Consumer Price Index
17:00 US FOMC Member Stein Speech

Currency Matters

Yesterday saw substantial volatility within the markets courtesy of mixed PMI figures released in Europe and a tacit message from Mario Draghi suggesting that the European recovery will take longer than expected. Whilst the BOE’s decision to maintain interest rates and quantitative easing levels at their current level had little impact upon the markets, German and Euro Zone PMI figures falling short of expectations and Mario Draghi’s negative assessment of Europe’s recovery caused a substantial move in the euro throughout the day whilst GBP/EUR eventually closed flat at 1.1777. The dollar experienced similar levels of volatility yesterday following higher than expected US Initial Jobless Claims as GBP/USD closed near a six week high of 1.5225 and EUR/USD also closed up at 1.2926.

Despite the relatively high levels of volatility that were witnessed on both sides of the pond yesterday, the largest market movements were attributed to economic news coming out of Asia. In the early hours of yesterday morning the Bank of Japan committed to a substantial bond buying program worth over half a trillion dollars per year – the size of which took markets by surprise. Unsurprisingly however this lead to the most considerable Yen sell off that we have seen for quite some time with the Yen closing down across the board. The Yen touched a near three and a half year low yesterday against the Dollar and has now pushed above this level with USD/JPY reaching 97.15 so far this morning, whilst GBP/JPY has hit 146.67.
This morning we have seen relatively minor movements in the markets following the release of Euro Zone Retail Sales and German Factory Orders, both of which came out above expectations. Market participants are likely regrouping following yesterday’s volatile trading environment and preparing themselves for the release of the US Nonfarm Payrolls later today. Following the weaker than expected US data yesterday, another subpar performance today for the US jobs market could cause the Greenback to drop off even further, with GBP/USD potentially reach 1.53+.

Cyprus Bailout

Not so much ‘good news and bad news’ for Cyprus this morning, rather ‘bad news and worse news’. Whilst on the face of it the 10 billion euro bailout, agreed by the Troika late last night to help save the fledging Cypriot economy, has helped reduce uncertainty within the Euro Zone as evidenced by market reaction earlier this morning in Asia and also across Europe today, it has come at a cost, a very high cost which will undoubtedly throw Cyprus into the inevitable recession that it already faced.

The lesser of two evils was essentially what was agreed last night as the dreaded levy that depositors of Cypriot banks had feared, was enforced upon the agreement and will form a crucial part of the bailout. Depositors with over €100,000.00 will now face a mandatory ‘tax’ of around 30% on their holdings, something that will likely do very little to halt a run on the countries banks this week. However, when the only other alternative is to leave the Euro Zone, there appeared to be no other option, especially when a potential return to the Cypriot Pound would likely result in over a 30% decrease in the value of any funds currently held within Cyprus.

Despite the bailout, the outlook remains very bleak for Cyprus who will now inevitably face a prolonged recession. As a result of the bailout it would also seem inevitable that anyone still holding funds in Cyprus will remove them and any future depositors will now be non-existent – effectively killing Cyprus’s role as somewhat of an off shore financial centre. Similarly, despite the positive reaction in Europe this morning there will now be concerns regarding deposits held within other European countries at risk of requiring future bailouts i.e. Spain and Italy.

The Pound closed up against the Euro at 1.1809 and down against the US Dollar at 1.5170. The Euro is down against the US Dollar at 1.2850.

Mark Webster

Punch Bag Sterling

Unemployment figures released this morning showed that the UK ILO Unemployment Rate rose marginally to 7.8% from 7.7%, whilst the UK Claimant Count Change improved to -12.5K for the third month in a row. However, this slight glimmer of hope that the UK economy may actually be starting to show signs of recovery, offered little help to the Pound this morning which has taken somewhat of a battering following the release of the BoE minutes.

Sterling plummeted at 9:30 GMT against both the Euro and the Dollar, following the release of BoE minutes which confirmed that three of the nine MPC members favoured an increase in stimulus at this month’s policy meeting. Paul Fisher, David Miles and BoE Governor, Sir Mervyn King were the members who were voted down, though this does suggests that the committee is potentially warming to the idea of additional stimulus in order to help revive the economy. This is something we may well see in the coming months which, whilst potentially helping the economy, certainly wouldn’t do the Pound any favours.

GBP/EUR dropped over a cent in the space of twenty minutes after the BoE minutes were released, before levelling out to its current trading level of 1.1430. Cable faired similarly, as the pair dropped from 1.5439 to a daily low of 1.5294 in less than an hour, and is currently trading at 1.5308. The GBP/EUR charts aren’t looking too favourable for the Pound either and the general outlook is rather bearish for Sterling at the moment. However, the Euro Zone has by no means ‘recovered’ and with elections in Italy coming up and rumblings from a number of European leaders that the Euro is far too high at present (potential for EU interest rate cuts), it would appear that there remains significant scope for GBP/EUR to recover at some point, the question is when.

European Sentiment Continues to Rise

Sterling is having a relatively volatile morning today as Cable is currently trading at 1.5485, after having tested 1.55 earlier, and going on to reach a daily high of 1.5504 before dropping back down. Similarly Sterling has had a wide trading range against the Euro this morning, having dropped to 1.1583 following the release of positive EU economic data, however the pair then rebounded up to a high of 1.1626 before falling back.

German and EU ZEW Survey – Economic Sentiment figures both rose this month, reaching 48.2 and 42.4 respectively. This initially led to a Sterling sell off before the Pound recovered sharply against the Euro, however with these figures having now risen for the past three months we could see sentiment towards GBP/EUR turn back to the downside this afternoon.

Please find a summary of this week’s economic calendar below:
19.02.13
10:00 EU ZEW Survey – Economic Sentiment
10:00 EU ZEW Survey – Economic Sentiment

20.02.13
07:00 German Consumer Price Index
07:00 Producer Price Index
09:30 UK BoE Minutes
09:30 UK Claimant Count Rate
09:30 UK ILO Unemployment Rate
13:30 US Building Permits
13:30 US Producer Price Index
19:00 US FOMC Minutes

21.02.13
07:58 French Markit Manufacturing PMI
07:58 French Markit Services PMI
08:28 German Markit Manufacturing PMI
08:28 German Markit Services PMI
08:58 EU Markit Manufacturing PMI
08:58 EU Markit Services PMI
09:30 UK Public Sector Net Borrowing
13:30 US Consumer Price Index
13:30 US Initial Jobless Claims
13:58 US Markit Manufacturing PMI

22.02.13
07:00 German GDP
09:00 German IFO – Business Climate
09:00 German IFO – Current Assessment
09:00 German IFO – Expectations
10:00 European Commission Releases Economic Growth Forecast

On Your Marks, Get Set, Manipulate

The G20 followed a similar line over the weekend to the one that was adopted by the G7 earlier last week, as finance ministers of the world’s largest economies commented in a joint statement: “We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes”. The fact that the statement was of a rather generic nature, and importantly didn’t specifically refer to Japan, has effectively given Japan the green light to continue its unofficial policy of Yen depreciation, and has potentially opened the door for other countries to follow suit. This lead to the Yen dropping against the Dollar yet again this morning as USD/JPY hit 94.21, nearing the low it reached on February 11th of 94.46, its lowest level in over two and half years.

Some ministers have begun to comment on the potential for ‘currency wars’ in recent weeks as countries actively pursue a weaker currency. However, Japan has reaffirmed today that its monetary easing policies are specifically targeted at ending deflation rather than purposefully trying to devalue the Yen in order to improve the countries global competitiveness, though currency devaluation coincidentally will be an inevitable side effect of such policies. However leading economist, and Nobel Prize winner, Paul Krugman, notes that the currency war issue is “a misconception and it would be a very bad thing if policy makers take it seriously”, and that “the stuff that’s now being called “currency wars” is almost surely a net plus for the world economy”.

Sterling is not fairing any better this morning following the G20 meeting as GBP/EUR is currently trading at 1.1585, having slightly rebounded from a daily low of 1.1562. Similarly Cable has also rebounded from a seven month low of 1.5437 this morning and is currently trading at 1.5470. Whilst the Pounds decline has made imports more expensive over the last month, BoE Monetary Policy Committee member Martin Weale commented last week that the weakening Pound would help improve Britain’s export prospects.

It is Presidents day in the US today, a Public holiday which means trading volumes will be lower and the economic calendar if rather light. However, this afternoon ECB president Mario Draghi will be making a speech. Market participants will be keen to see whether Mr Draghi will make any reference to a potential future interest rate cut. Such a move, which could well happen within the next few months as looser monetary policies have now seemingly been tacitly warranted by the G20, would help Sterling recover some of its recent losses against the common currency.

Mark Webster