U.S. Session Forex Recap – Oct. 26, 2016

  • Richmond manufacturing index up from -8 to -4 vs. -5 forecast
  • U.S. CB consumer confidence index down from 103.5 to 98.6 vs. 101.5 consensus
  • U.S. IBD/TIPP economic optimism index up from 46.7 to 51.3
  • ECB head Draghi: Will exit QE when the euro zone meets inflation targets
  • BOE Gov Carney: Not willing to let GBP slide indefinitely

Central bankers stole the show once more as the pound and euro reacted to remarks from Carney and Draghi.

Major Events:

BOE head Carney’s remarks – Sterling was already off to a weak start as traders anticipated downbeat remarks from the BOE head. Instead Guv’nah Carney decided to throw the spotlight on pound weakness, citing that they are not willing to let the pound weaken indefinitely.

Carney went on to project that the impact of pound depreciation will quickly translate to higher price levels, estimating that annual inflation will reach 1.5% to 1.8% by spring next year. He even mentioned that the central bank is willing to tolerate an overshoot in inflation if this could support hiring and growth but added that policymakers are not indifferent to the pound’s levels.

Still, Carney pointed out that their mandate is to maintain price stability and not to target the exchange rate. In a nutshell, market watchers generally interpreted these remarks to be slightly hawkish since leaving sterling to depreciate and boost inflation means that the BOE doesn’t need to cut interest rates or increase bond purchases anytime soon.

ECB head Draghi’s testimony – Dovish Draghi was back in the game, as the ECB head reiterated that they will exit their QE program only when the euro zone meets its inflation targets. He noted that their monetary policy accommodation is working as expected but clarified that the current level of easing is not the new normal.

“We have every reason to believe that, with the impetus provided by our recent measures, monetary policy is working as expected: by boosting consumption and investment and creating jobs, which is always socially progressive,” Draghi explained, giving the ECB a pat on the back for successfully warding off deflation in the region.

Major Market Movers:

GBP – The pound started to slide ahead of Governor Carney’s speech but quickly recovered when the BOE head wasn’t exactly dovish.

GBP/USD dipped to a low of 1.2097 then bounced right back up to 1.2205, GBP/JPY dropped to 126.61 then pulled up to 127.22, EUR/GBP rose to .8981 then retreated to .8924, GBP/AUD dropped to 1.5848 then rallied to 1.5957.

EUR – The shared currency weakened across the board when Draghi made it clear that they won’t be lifting stimulus anytime soon.

EUR/USD tumbled to a low of 1.0852 but was able to recover to 1.0880, EUR/JPY dropped from a high of 113.91 to 113.44, EUR/AUD slid from 1.4258 to 1.4249, and EUR/NZD is down to 1.5212.

Watch Out For:

  • 1:30 am GMT: Australia’s quarterly CPI (0.5% expected, 0.4% previous)

See also:

London Session Recap

Asian Session Recap

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