Euro Scales Higher

Daily Analysis - 10/09/2017

European Central Bank Clears Policy Fog

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The Euro extended its recent appreciation against the US Dollar following greater clarification from the ECB about its proposed timeline for discussing asset purchase tapering.  The dollar remained the big underperformer of the week as concerns surrounding the economic impact of Hurricanes Harvey and Irma continue to weigh on investor sentiment.

Last Week


The European Central Bank’s monetary policy decision on Thursday was the dominant market event last week. President Mario Draghi pushed any tapering decision to next month’s meeting, but insisted rate tightening would be a prolonged process. The Central Bank slightly lifted its economic outlook for the region while revising its inflation forecasts for 2018 and 2019 downward, leading to a Euro surge against the US dollar. The common currency broke through the key psychological mark of $1.2000.

The Bank of Canada was the other notable Central Bank in focus, with policymakers there surprising most investors with a 25 basis-point rate hike to 1.00%. In the US, the federal debt situation was back in the spotlight after President Trump and Congressional leaders struck a deal to extend the debt ceiling with funding legislation. On the data front, the trade deficit showed no signs of shrinking, keeping the US on track to record a wider gap in 2017 than in 2016. The deficit edged 0.30% higher to $43.70 billion in July from $43.50 billion in June. Across the Pacific, Chinese export growth slowed more than forecast to 5.50% in August as demand from most major trading partners softened.  Imports witnessed an unexpected 13.30% gain, marking the tenth straight month of expansion.

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The Week Ahead


The upcoming sessions may be less dramatic as approaching central bank policy meetings are unlikely to exhibit many surprises. The BoE Monetary Policy Committee will meet on Thursday to determine interest rates, with rate hike expectations toned down by the dip in inflation and concerns that growth is precariously poised. The current consensus is anticipating rates remaining steady at 0.25% with no adjustments to asset purchases. The SNB is projected to keep its own rate unchanged at -0.75%.  An exchange rate warning from the Central Bank may be imminent considering the Swiss Franc’s 7.00% year-to-date gain against the US Dollar and rising safe-haven inflows.

Across the Atlantic, the US is set to report on inflation and retail activity. The annualized headline consumer price inflation rate is forecast to rise to 1.80% in August while core inflation is expected to ease to 1.60%. The average analysts’ estimate is for US retail sales to record a monthly gain of 0.40% in August, down from the 0.60% increase back in July. Chinese industrial production and Japanese machinery orders are the major data points due from Asia. On a yearly basis, industrial output is likely to accelerate from to 6.60% expansion in August while machinery orders are projected to rebound by 4.40% month-on-month for July.

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