Euro endures volatile day on ECB comments as emerging market currencies rally

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21 June 2018

thomasdodds

The Dollar pulled back slightly in the absence of any significant news about the US-China trade dispute.

R
isk assets staged a rebound during Asian trading after soothing words from the People’s Bank of China, which stated that it is ready to use monetary policy tools to ensure stability. Contradictory comments from ECB officials whipsawed the Euro, while Sterling tracked the common currency closely as traders await the outcome of the Bank of England June meeting today.

Bank of England risks keep a lid on the Pound

News that Prime Minister May had won a key vote on Brexit procedure in Parliament allowed the Pound to erase its daily losses and close the day essentially unchanged in New York trading. The vote provides a respite for her government. The moves were, however, quite subdued ahead of the key Bank of England June meeting.

The Euro had a volatile day as markets digested comments from the Bank of France Governor Villeroy, and Council member Nowotny. The former adopted a hawkish stance stating that the first hike could come in the summer of 2019, and the latter highlighted the role of widening rate differentials between the US and the Eurozone in keeping the Euro weak.

Another day without major macroeconomic or policy news out of the US left the Dollar to trade in a very tight range, ending the day nearly unchanged, although there was some greenback weakness vs emerging market currencies on the heels of a rebound in risk appetite.

Today’s focus is on, of course, the Bank of England meeting. Markets are expecting a repeat of the previous 7-2 vote for the status quo. Any further dissenters calling for an immediate hike would probably trigger a significant Pound rally.