The euro was the one currency to rule them all during the morning London session, thanks to hawkish rhetoric from top ECB officials.
The euro wasn’t the only currency that was on the move, though, since the Loonie also caught a bid, despite falling oil prices. The Swissy, meanwhile, got swamped by selling pressure.
- Swiss CPI m/m: 0.4% vs. 0.3% expected, 0.2% previous
- Swiss CPI y/y: 1.0% vs. 0.9% expected, 0.8% previous
- Euro Zone retail PMI: 51.7 vs. 48.6 previous
Hawkish ECB Rhetoric
A bunch of ECB officials got some press time during the session.
The first to step up to the plate was Peter Praet, the ECB’s chief economist. And he had these positive things to say with regard to inflation and inflation expectations:
“Signals showing the convergence of inflation towards our aim have been improving, and both the underlying strength in the euro area economy and the fact that such strength is increasingly affecting wage formation supports our confidence that inflation will reach a level of below, but close to, 2 percent over the medium term.”
“Waning market expectations of sizeable further expansions of our program have been accompanied by inflation expectations that are increasingly consistent with our aim.”
In short, inflation has been rising. More importantly, inflation expectations also improved. And that, together with improving overall fundamentals, mean that the inflationary pressure is likely sustainable.
As such, Praet heavily implied that the ECB may be unwinding its QE program sooner-than-expected when he said that:
“Next week, the Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases.”
Next up is Estonian Central Bank Head Ardo Hansson’s interview, wherein he said that:
“The market expectation is such that the rates might start rising at a moderate rate in the middle of next year.”
In other words, the ECB acknowledges market expectations for a rate hike by “the middle of next year.”
However, Hansson gave his message a rather hawkish twist when he said that a rate hike may come earlier than expected.
“When we are confident that inflation is on a moderate growth path, exiting may be a bit faster.”
Moving on, Deutsche Bundesbank Head Jens Weidmann also got some press time, and he reinforced the idea that the ECB may soon be ending its QE program when he said that:
“For some time now, financial market participants have been expecting that the asset purchases will end before 2018 is out.”
“As things stand, I find these market expectations plausible.”
The hawkish ECB rhetoric doesn’t stop there since Dutch Central Bank Head Klaas Knot was speaking before the Dutch Parliament and he said that:
“I think it’s reasonable to announce the end of the net bond purchases soon.”
Overall, the comments given by ECB officials during the session lend support to an earlier report that claimed that the ECB may announce an end to its QE program during next week’s ECB statement.
Modest risk-taking in Europe
Most of the major European equity indices were only slightly in the green after tossing and turning during the course of the morning London session.
And according to market analysts, risk-taking managed to win out againt risk aversion because of strong demand for tech and commodity-related stocks.
However, those same market analyst said that risk aversion was also present because of worries related to global trade and concerns over Italy’s new government.
And to that I’d add growing fears that the ECB may be tightening monetary policy, since the major European equity indices started to encounter some selling pressure when Praet started speaking.
- The pan-European FTSEurofirst 300 was up by 0.05% to 1,513.26
- Germany’s DAX was up by 0.37% to 12,834.59
- The blue-chip Euro Stoxx 50 was up by 0.08% to 3,462.45
U.S. equity futures were also modestly in the green.
- S&P 500 futures were up by 0.13% to 2,755.75
- Nasdaq futures were up by 0.11% to 7,187.00
Major Market Mover(s):
The euro was the top-performing currency of the morning London session and is also the second strongest currency of the day (so far), losing out only to the Aussie.
And euro bulls can thank ECB’s Praet for that since euro pairs started pushing higher after he gave his hawkish comments, which apparently supported yesterday’s rumor that the ECB may announce an end to its QE program during next week’s ECB statement.
EUR/USD was up by 49 pips (+0.42%) to 1.1771, EUR/JPY was up by 75 pips (+0.59%) to 129.72, EUR/CHF was up by 82 pips (+0.71%) to 1.1632
The Loonie was the second strongest currency of the session, which is kinda weird since there were no apparent catalysts and oil prices were down in the dumps during the session.
However, it’s possible that the Loonie got a lift because of growing expectations that Canada will be granted an exemption after rumors began to circulate yesterday that Treasury Secretary Mnuchin supposedly advised Trump to exempt Canada from steel and aluminum tariffs.
It’s also possible that we’re just seeing preemptive positioning ahead of Canada’s economic report for later.
USD/CAD was down by 44 pips (-0.34%) to 1.2891, GBP/CAD was down by 36 pips (-0.22%) to 1.7301, NZD/CAD was down by 40 pips (-0.44%) to 0.9082
The euro was flying high but the Swissy found itself at the bottom of the forex heap.
The prevalence of risk appetite may have helped to push the safe-haven Swissy lower. However, I can’t shake the feeling that the SNB may be sneakily weakening the Swissy again.
USD/CHF was up by 30 pips (+0.31%) to 0.9882, CAD/CHF was up by 50 pips (+0.65%) to 0.7665, AUD/CHF was up by 28 pips (+0.38%) to 0.7567
Watch Out For:
- 12:30 pm GMT: U.S. trade balance (-$49.0B expected, same as previous)
- 12:30 pm GMT: Revised U.S. non-farm productivity (0.6% expected vs. 0.7% previous) and U.S. unit labor costs (2.8% expected vs. 2.7% previous)
- 12:30 pm GMT: Canada’s trade balance (-$3.4B expected vs. -$4.1B previous)
- 12:30 pm GMT: Canadian building permits (-1.0% expected vs. 3.1% previous)
- 2:00 pm GMT: Canada’s Ivey PMI (69.7 expected vs. 71.5 previous)
- 2:30 pm GMT: U.S. crude oil inventories (-2.0M expected vs. -3.6M previous)
- 4:00 pm GMT: BOE MPC Member Ian McCafferty is scheduled to give an interview