After starting the trading day on a weak note, the Greenback found buyers across the board and is now winning out against its peers, with the exception of the safe-haven yen.
The euro, meanwhile, already got punched in the nose when the Greenback began to strengthen. However, more sellers came out of the woodwork when ECB Overlord Draghi gave a dovish message during his speech.
The euro wasn’t the weakest currency, though, since the pound was much weaker, even though there weren’t really any direct catalysts for the pound’s slide.
- Euro Zone current account: €24.4B vs. €30.3B expected, €32.8B previous
- Dairy auction underway
ECB’s Draghi speaks
ECB Overlord Draghi delivered the opening speech at the ECB Forum on central banking in Portugal.
And while he said that the Euro Zone economy continues to grow within the ECB’s expectations, he also said that uncertainty has risen recently, adding that “the downside risks to the outlook come from three main sources.”
And according to Draghi, these are “The threat of increased global protectionism prompted by the imposition of steel and aluminum tariffs by the U.S.; rising oil prices triggered by geopolitical risks in the Middle East; and the possibility for persistent heightened financial market volatility.”
With regard to monetary policy, Draghi had this to say:
“We will remain patient in determining the timing of the first rate rise and will take a gradual approach to adjusting policy thereafter.”
“The path of very short-term interest rates that is implicit in the term structure of today’s money-market interest rates broadly reflects these principles.”
In short, Draghi reinforced the idea that interest rates won’t be moving “through the summer of 2019,” as stated in last week’s ECB statement.
ECB’s Liikanen speaks
Shortly after Draghi gave his speech, ECB Member Erkki Liikanen was quoted in a Bloomberg report as saying that “if it is needed, to ensure monetary policy provides adequate support to reaching the price stability target,” then the ECB may keep rates steady “even after the end of summer next year.”
Larry Summers speaks
Former U.S. Treasury Secretary Lawrence Summers was interviewed by Bloomberg just before the morning London session rolled around.
Summers was asked about the effect of a trade war on the U.S. economy and he replied by saying that:
“Trade war is not likely to be large enough that its direct effects damage the economy profoundly.”
However, Summers was quick to add that:
“[I]t’s pychological effects in increasing uncertainty could be very serious.”
And while Summers thinks that “We’re still a long way to go before a full-fledged trade war that would send the global economy into a recession,” he also said that he thinks the biggest economies are not prepared for another recession.
Other than that, Summers (a vocal critic of Trump) also took aim at some of Trump’s policies.
Intense risk-off vibes in Europe
Risk aversion continued to plague Europe, sending the major European equity indices broadly deeper into the red for yet another day.
And as usual, market analysts were blaming the risk-off vibes on trade-related jitters because of the escalating trade spat between the U.S. and China.
- The pan-European FTSEurofirst 300 was down by 0.78% to 1,497.26
- Germany’s DAX was down by 1.29% to 12,669.85
- The blue-chip Euro Stoxx 50 was down by 1.11% to 3,429.05
U.S. equity futures were also down and out for the count during the session.
- S&P 500 futures were down by 1.13% to 2,748.25
- Nasdaq futures were down by 1.08% to 7,197.50
Major Market Mover(s):
The Greenback began to find support after Former U.S. Treasury Secretary Lawrence Summers said that a trade war won’t “damage the economy profoundly.”
After that the Greenback began to climb broadly higher and even managed to regain some lost ground against the safe-haven yen.
And according to market analysts, that’s because market players are switching their focus less on the negative impact of the tariffs on the economy and more on the possibility that the Fed may need to hike more rates since tariffs would mean imported goods cost more, which means more inflationary pressure.
USD/JPY was down by 24 pips (+0.22%) to 108.89, USD/CHF was down by 28 pips (+0.28%) to 0.9965, USD/CAD was down by 35 pips (+0.27%) to 1.3272
The euro was already feeling the heat when the Greenback began to advance. However, it encountered even more sellers when ECB Overlord Draghi gave his hawkish comments.
EUR/USD was down by 39 pips (-0.34%) to 1.1544, EUR/AUD was down by 44 pips (-0.28%) to 1.5684, EUR/NZD was down by 68 pips (-0.41%) to 1.6740
The pound was the biggest loser of the morning London session and also happens to be the second biggest loser of the day after the Aussie.
The pound’s slide appears to be mainly due to the strengthening Greenback. However, it’s also likely that some traders were preemptive positioning and/or unwinding their GBP positions ahead of the BOE statement.
It’s also probable that the pound was weighed down by Brexit-related jitters after the House of Lords voted to support the “meaningful vote” amendment to the E.U. Withdrawal Bill, which is seen as a defeat for and a direct challenge to Theresa May’s leadership. But then again, the pound barely budged when word first got around during yesterday’s U.S. session.
GBP/USD was down by 51 pips (-0.39%) to 1.3161, GBP/AUD was down by 58 pips (-0.33%) to 1.7880, GBP/NZD was down by 88 pips (-0.46%) to 1.9084
Watch Out For:
- 12:30 pm GMT: U.S. building permits (1,350K expected vs. 1,287K previous)
- 12:30 pm GMT: U.S. housing starts (1,311K expected vs. 1,287K previous)
- Dairy auction currently underway (-1.3% previous); auction usually ends at around 2:00 pm GMT