Euro touches three month high on hawkish Mario Draghi comments

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25 September 2018

thomasdodds

The Euro briefly spiked above the 1.18 mark against the US Dollar for the first time since June on Monday following some hawkish comments from President of the European Central Bank Mario Draghi.

D
raghi fuelled speculation that the central bank may soon be preparing to raise interest rates in the Euro-area for the first time since 2011 after expressing optimism over the bloc’s inflation outlook. Speaking at the European Parliament, he called the acceleration in headline inflation as ‘relatively vigorous’, while also expressing confidence that an increase in wage growth would continue in the Eurozone. This is supportive of our recent call that the ECB may consider raising rates as early as the second quarter of next year, providing there is evidence of a rebound in the core inflation measure.

Fellow ECB members Coeure and Praet could shed more light on the central bank’s plans today, with both scheduled to speak this afternoon.

Federal Reserve expected to hike rates, revise forecasts

Activity out of the US was relatively quiet yesterday, with currency traders instead turning all attention to tomorrow’s Federal Reserve interest rate decision.

The Fed are almost certain to announce a third rate hike so far this year, with financial markets now fully pricing in another upward move. The key for the US Dollar will instead be any comments from the FOMC regarding the recent strong news on growth and, crucially, wages. We will also be paying close attention to the latest growth and inflation forecasts. With the market seemingly expecting a hawkish tilt, there is a risk that these forecasts are not upwardly revised by as much as investors are anticipating, which could mean that the recent fall in the greenback continues.

Aside from Wednesday evening’s Fed announcement, updated GDP data on Thursday could prove a market mover.

Pound remains soft on downbeat Brexit optimism

The Pound clawed back some ground against its major peers on Monday, reversing some of last Friday’s losses that saw the currency tumble to its weakest position in ten days.

News that the European Union had rejected the UK government’s Checkers proposal sank Sterling at the end of last week. More upbeat comments from Brexit minister Dominic Raab did, however, somewhat help lift optimism surrounding Brexit yesterday. Raab said that he was still confident Britain would eventually strike a deal with the EU ahead of March’s exit date.

News headlines out of Brexit undoubtedly remain the biggest driver for Sterling at the moment, particularly given the lack of major UK economic data out this week.