European Central Bank suggests more stimulus - weakening the common currency
August 16, 2019
Financial markets sold the euro all week in anticipation of the European Central Bank (ECB) announcing more stimulus at a regularly scheduled meeting next week. FX markets expect the ECB to be more aggressive than other central banks, thus weakening the currency. The British pound gained as FX traders speculate on a halt in the march to a hard Brexit.
August 16, 2019
EUR/USD 1.1071 GBP/USD 1.2154 USD/CAD 1.3304 AUD/USD 0.6778 USD/JPY 106.27 USD/CNH 7.0515 USD/ILS 3.5463 USD/MXN 19.5842 USD/CHF 0.9796 USD/INR 71.1550
The dollar rose this morning despite lower than expected July data on housing starts. Building permits, however, grew much more than expected. Wall Street finishes a wild week with the 10-year US Treasury yield briefly falling to 1.47% - the lowest since 2016. It remains a healthy yield compared to negative 0.70% for the German 10-year or negative 0.22 for Japan. Higher comparative yields will continue to support the US dollar. University of Michigan Consumer Sentiment survey out this morning.GBP
The pound rose vs. the US dollar and especially against the euro on hopes a hard Brexit can be avoided. Jeremy Corbyn’s plan to prevent a no-deal Brexit by being installed as a caretaker PM on a “strictly time limited” basis, has been met with opposition. If he wins a no-confidence vote in the government, the Labour party leader plans to delay Brexit. Other party leaders were concerned about his plans, with Jo Swinson, Liberal Democrat leader, saying that the plan was not “viable”.EUR
The euro is down for a fourth day in a row, having fallen 1.3% vs. the dollar this week. The European Central Bank should come up with an “impactful and significant” stimulus package at its next meeting in September, senior ECB official Olli Rehn said on Thursday. He also said that it is better for the ECB to overshoot than undershoot market expectations when it comes to new stimulus measures.CAD
The Canadian dollar gained vs. the US dollar today on softening global trade concerns. The price of oil also firmed.ASIA/PACIFIC
On Friday, China announced plans to boost disposable income and stabilize employment. FX markets await additional response from China as the trade war simmers. The Japanese yen gave back some gains from earlier this week as global trade sentiment improved slightly. The central bank governor for Japan indicated more stimulus may be necessary, but markets do not see any creative alternatives for Japan to increase inflation.