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Will Mario Draghi talk down the euro?

7th September 2017 Market Update

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🇬🇧 GBP – With no economic data out yesterday, the pound did well to continue its gains from Tuesday causing the currency to climb to a one month high against the US dollar and a new two week high against the euro.

The only news that’s come out today has been house price data out of Halifax which has come above expectation this morning, though we are unlikely to see much movement on the back of this.

🇪🇺 EUR – Data from Germany showed that factory orders fell unexpectedly. Whilst orders from other Eurozone countries and domestic orders fell, orders from other nations rose by 0.6% – indicating that the current strength of the euro isn’t hurting Germany. Also from Germany, Wolfgang Schauble, German finance minister, backed the call by John Cryan, Deutche Bank CEO, to end cheap money supply and thus start raising interest rates. Interesting comments, but the markets seemed to brush these comments aside with little impact on the euro.

Today is what markets have been waiting for all week. No interest rate move is expected but the accompanying speech by Mario Draghi at 1.30pm will be of keen interest. For the last month, markets have been expecting Draghi to talk down the euro without any success; so could this be the time? Analysts are also expecting a delay in the tapering of QE from October to December. If we see either or both of these outcomes, we could well see the euro lose ground.

We also have the latest second quarter growth figures forecast to be in line with the previous estimate.

🇺🇸 USD – Service sector figures from both data agency Market and ISM fell short of expectations causing the US dollar to continue its recent downtrend. In other news, vice chair of the Fed, Stanley Fischer, shocked markets by electing to quit the Fed in Mid-October; way ahead of his scheduled leave of June 2018. Fischer cited personal reasons for his departure in his letter to the president.

Overnight we had news that Trump negotiated a deal with the Democrats to avoid default and raise the debt ceiling for another three months to around December 15th. The only data today is the weekly initial jobless claims.

 

Key Announcements

🇪🇺 EUR
10:00am – Q2 GDP – Expected to remain at 2.2%
12:45pm – ECB Rate Decision – Expected to remain at 0%
13:30pm – ECB Monetary Policy Statement

🇺🇸 USD
13:30pm – Initial Jobless Claims – Expected to increase to 241,000

 

Our View: As we saw yesterday, shocks in the currency markets cannot be ruled out. In light of recent strength in the Canadian economy, the Bank of Canada elected to shock markets and raise interest rates to 1% and thus removing the emergency measures they put in place back in 2015.
 
With the summer now over, could this be the start of more shocks in the currency markets? Mario Draghi’s speech will be closely monitored with any mention of a strong euro or a delay in QE being the factors for any depreciation in the euro.

 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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