EUR/USD continued to slump this week, as sentiment towards the ECB’s recently adopted quantitative easing programme turned even more negative and confidence in Greece’s austerity reform promises worsened. This happened despite ECB President Draghi saying that a slowdown in growth had been reversed and that an EU recovery should gradually broaden.
It’s an ominous sign for the euro that the sell-off is continuing this morning on the back of these fairly positive comments. This further demonstrates how sour sentiment towards the single currency is at the moment. Bond yields also fell to record lows, lumping further downward pressure on the single currency.
By Alex Edwards at UKForex, an international money transfer service
Come the end of the week, euro sellers took a bit of a breather and the single currency recovered from the sub 1.05 lows against the greenback seen earlier in the week, mostly as a result of profit taking. Whilst the euro stabilised, the baton was seemingly handed over to GBP sellers. It fell below 1.49 on Thursday as BoE Governor Mark Carney gave a speech at the Advanced Manufacturing Research Centre in Sheffield. He said “the bottom line is that there is a risk that the combination of persistently low global inflation and the strength of sterling could weigh on prices here for some time.”
This could mean UK interest rates stay on hold for longer, this being taken as a cue to sell the pound. GBP/USD fell to 1.4865, and GBP/EUR drifted from its seven and a half years highs of 1.4260 to finish the week closer to the 1.40 figure.
Meanwhile, the dollar’s strength set to continue next week. Divergent central policy continues to be the driver of this and until this changes – which looks unlikely anytime soon – GBP/USD and EUR/USD look set to slide further. The latter could perhaps even below parity with the dollar over the next few months.
The Fed make their monetary policy statement on Wednesday and, should they remove the word ‘patience’ (with regards to raising interest rates), the dollar will likely snap higher again. The statement falls due on Wednesday evening and is arguably the main market event this week.
Wednesday is set to be a busy day. UK employment and average earning data is also to be released and has the potential to underline Carney’s fairly dovish comments on inflation last week. German ZEW and a speech by ECB President Draghi are on the calendar for Monday and Tuesday.
In our latest podcast, we discuss QE: Who got it right, Krugman or the Gold bugs?
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