On Friday, the WSJ Dollar Index, which tracks the dollar’s value against 16 currencies, hit a 13-year high. For instance, here is Germany’s 5-year government bond yield which is clearly pricing in much more demand ahead.
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By Monday, the euro was down slightly against the dollar at $1.0575, while the dollar was up 0.3% against the yen at Yen123.106. The dollar index is once again nudging the 100 level this morning, whilst EURUSD is being pressured below the 1.06 level as the dynamics continue.
Soft inflation readings out of the euro zone on Monday and Tuesday could strengthen the expectations for European Central Bank action at its December 3 policy review, but whatever the outcome, an easing appeared to be fully factored in.
European shares were lifted by the prospect of the ECB unveiling an extension of its bond-buying program at a Thursday meeting.
By contrast, the Federal Reserve is expected to raise US rates for the first time in nearly a decade later in December.
Oil prices were also lethargic after their falls on Friday.
For Commerzbank’s chief economist Joerg Kraemer, the European Central Bank may simply “make a decision in principle… and defer the clarification of further details to a later meeting”.
According to data from the Commodity Futures Trading Commission released on Friday, speculators further increased long dollar positions in the week through November 17 to their highest in eight months.
The pound briefly fell below US$1.50 for the first time since April after the newest member of the Bank of England’s Monetary Policy Committee said he’s comfortable with keeping interest rates at a record low. “Indeed, Fed Chair Yellen is not even waiting for this week’s employment report before giving what we expect will be the clearest signal to date that the start of tightening is imminent”, said O’Sullivan.
Against the yen, the dollar was steady at 122.75, still in consolidation mode after reaching a three-month peak of 123.77 on November 18.
Against this backdrop, the euro remained on the back foot, dipping 0.15 percent to $1.0626.
While the euro area struggles with weak growth and high unemployment, the United States is continuing to create jobs quickly.
But Draghi is also using words to move markets in order to achieve his economic policy targets. Some economists further forecast a cut to the deposit rate. The ECB will contemplate a wide range of measures, from a fairly uncontroversial deposit rate cut to more extreme – but highly unlikely – moves such as buying rebundled non-performing loans to resurrect bank lending.
France’s CAC 40 index added 0.6% to 4,958.95 while the U.K.’s FTSE 100 index rose 0.1% to 6,383.25 (http://www.marketwatch.com/story/ftse-100-lower-as-iron-ore-slump-puts-pressure-on-miners-2015-11-30).
ALL EYES are on Europe this week as European Central Bank (ECB) president Mario Draghi will reveal more details on planned quantitative easing to stoke markets on Thursday.
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We believe that in future it will not be possible for China if Yuan joins the IMF’s basket of reserve currencies probably this week.
