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Risk appetite returns

What the Eurozone does about an inflation rate of 0.5% was not resolved last week after the ECB meeting, but we are likely to see the debate continue into this week, which is likely to keep the single currency on its toes. The head of the ECB, Mario Draghi, heads over to Washington for the World Bank and IMF spring meetings, which is always a time for reflective debate and discussion of policy options for the future. The story of last week was that the ECB has been doing work in the area of asset purchases and how such a program would impact inflation. For the Eurozone, it is harder to achieve than for the US for example, with the Eurozone more reliant on the banking sector rather than capital markets for finance. On top of this, there is the issue of many diverse countries and a treaty that explicitly rules out the monetary financing of debt. Note that there are several ECB members scheduled to speak today, so this issue could well be discussed during the day.
Elsewhere, in the wake of the US employment report on Friday, we have seen the strong performance of emerging market FX continue, with the dollar bloc (CAD, AUD, NZD) also throwing in a strong performance. The Aussie itself finds itself just below the 0.93 level, having been the main surprise of the first quarter. CAD is trading one month highs vs. the dollar, whilst the kiwi is recovering after the weakness seen earlier last week. The bottom line is that the US labour market data on Friday put a sprinkling of risk appetite back into the market, even if equities don’t agree.

Further reading:

EURUSD consolidating around 1.3700 level

EUR/USD Forecast Apr 7-11

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