Market News: ECB Clarifies Monetary Policy, Euro Benefits

Adrian Jones

Adrian Jones

Earlier today the Euro bounced off recent lows to steady as ECB officials commented on policy.

ECB governing council member and Bundesbank chief Jens Weidmann hinted at negative rates when he said that interest rates were an option to temper Euro strength and went on to say that quantitative easing remained an option to combat deflation.

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[Image: ECB governing council member and Bundesbank chief Jens Weidmann]

This caused the Euro to drop having moved suddenly and widely, but it steadied again later when Weidmann said that the current Euro rate doesn’t call for monetary policy action.

The Euro was also buoyed by comments from ECB President Mario Draghi who said that the ECB does not see that deflation as a key symptom in consumer spending traits.

The Euro earlier traded at $1.3818, up from Tuesday’s 3 week low of $1.3749.

The U.S. Dollar index, which measures the Dollar against six major currencies, was slightly higher by 0.1% at 79.985 with little momentum with the greenback also sluggish earlier, even though data released yesterday had shown that U.S. consumer confidence was at a 6 year high this month.

It seems to me that the main driver for the Dollar at the moment appears to be monetary policy, and that unless news and data have direct reference or relevance to policy, following for instance employment or inflation, the market is less sensitive to data.

The Dollar climbed 0.1% to 102.38 Yen, gaining some momentum after safe haven demand waned as tensions in the Ukraine have eased for the moment and as Japanese investors began to close their books ahead of the completion of the domestic fiscal year at the end of March.

With little by way of news expected to knock the Yen out of its current range, investors are now beginning to focus their attention on U.S. nonfarm payrolls that are due out next week.

The Australian Dollar traded near a 4 month high at $0.9162.

The Aussie and Kiwi, both often used as a proxy for exposure to growth cycles in China, Australia’s key export market, have been given a lift on speculation that China is to unveil stimulus measures to re-energise its slowing economy.

Today the market would be looking to any comments from Reserve Bank of Australia Governor, Glenn Stevens, to see if he would comment on the Aussie as being too high.

All the best!

Adrian Jones

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