Talk of end to ECB stimulus measures helps lift Euro to three week high

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7 June 2018

thomasdodds

The Euro advanced to a three a week high against the US Dollar on Thursday morning, after European Central Bank member, Peter Praet, added weight to a report released this week that suggested policymakers in the Eurozone could soon be ready to announce an end date to its QE programme.

P
raet, one of the more senior members on the ECB’s Governing Council, said that the bank would next week debate whether to end bond purchases later this year. President of the Dutch central bank, Klaas Knot, struck an equally hawkish tone, noting that it would be ‘reasonable’ to announce the end to quantitative easing ‘soon’. This appears to be somewhat of a concerted effort to prepare the market for an announcement of some form when the ECB meets next Thursday.

As we have stated, however, with Euro-area inflation weak and recent macroeconomic news surprising to the downside, we think that such an announcement is slightly premature and that another extension in the QE programme beyond September remains possible. It is worth noting that, despite recovering off recent lows, Italian financial markets remain fragile, which could prove another major stumbling block for tighter policy.

The next test for the Euro will be this morning’s revised GDP figures. Any positive surprises here could drive the common currency back above the 1.18 mark versus the USD.

Sterling steadies above 1.34 level after solid data

A renewed sense of optimism over the UK economy helped steady the Pound above the 1.34 mark yesterday. Data released earlier in the week that showed the UK’s services sector expanded at a much healthier pace in May has caused investors to begin to come around to the idea that the slowdown in the UK economy, in the first quarter of the year, may prove temporary.

Yet, with the next major piece of economic news, the April labour data, not scheduled until next Tuesday, Sterling could be stuck in a range until then, with investors reluctant to push the Pound too high off the back of one upside surprise.

US trade deficit narrows in April

The US Dollar spent much of trading yesterday relying on news elsewhere, with macroeconomic and political news out of the States unusually quiet this week. We did see a modest improvement in the latest US trade balance data, although this was mostly overlooked by the market. The US trade deficit narrowed to $46.2 billion in April from the previous $47.2 billion recorded in March.

Today should be another relatively quiet session in the US, with jobless claims data out this after-noon typically not a market mover. We instead await next Tuesday’s inflation data as the next major piece of news out of the US economy.