Euro retreats as European Central Bank deliver little new to encourage the hawks

Euro stumbling into tomorrow’s ECB press conference
Euro stumbling into tomorrow’s ECB press conference
Author

21 July, 2017

Earlier, the European Central Bank announced it will continue to make purchases under the asset purchase programme (APP) at the current monthly purchase pace of €60bn (£53.5bn, $69.3bn), adding it will also keep interest rates unchanged at zero in line with market expectation.

A raft of indicators in recent months has raised expectations that the eurozone recovery has gained momentum and that growth will come in stronger than anticipated. "Headline inflation is dampened by the weakness in energy prices". "Moreover, measures of underlying inflation remain overall at subdued levels".

"Draghi's speech was essentially dovish, emphasizing a "very substantial degree of accommodation" and reaffirming the commitment to quantitative easing", Mitsubishi analyst Jonathan Butler said.

Fed Chair Janet Yellen announced at the central bank's monthly meeting last week that US interest rates were reaching "neutral" levels and any further hikes would be gradual.

JAPAN TRADE: Upbeat economic growth and forecasts for China and the rest of the region, followed by news that Japan's exports rose almost 10 per cent in June from a year earlier also brightened sentiment.

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The highly anticipated European Central Bank meeting took place today with the announcement that interest rates would remain unchanged at the record low of 0.0%.

Markets reacted sharply anyway, helping to send the euro higher " it's recently pushed above $1.15 for the first time since May 2016 " and bond prices lower.

Demand for the Euro could weaken markedly if the ECB looks less likely to return to a hawkish bias in the coming months, given the increasing shift towards tighter monetary policy from other major central banks. The purchases pump newly printed money into the economy in an effort to push up inflation, which is now at an annual rate of 1.3 percent. Aussie/dollar rose to 0.7987 following the news, but retraced the gains later in the session to last trade at 0.7924. While the figures may provide some upside for the Dollar, property sector data having been considered a barometer on the U.S economy and consumer sentiment of late, the figures are unlikely to have any bearing on monetary policy, leaving the Dollar with plenty of ground to make up through the 2 half of the year. But it was still near Tuesday's more than one-year high against the greenback of $1.1583. Overnight, the Bank of Japan announced it was maintaining its policy position unchanged, while yet again delaying the deadline to hit 2 percent inflation.

"Inflation is not where we want it to be and where it should be", he said. While economists were expecting monthly PPI to decline by 0.1%, the index stagnated relative to the prior month when a decline of 0.2% had been recorded. That was just above the 0.8 percent drop economists had expected. That was shy of expectations for a surplus of 488.0 billion yen following the 204.2 billion yen deficit in May.


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