Wednesday, 23 January, 2019

European Central Bank keeps interest rates unchanged

EUR  USD chart EUR USD chart
Nellie Chapman | 26 January, 2018, 02:50

The single currency scaled $1.24 overnight for the first time in over three years, crowning a stellar rise over the past 2-1/2 months from $1.1608 in the first week of November.

Persistent US Dollar weakness is also likely to benefit Euro exchange rates, with concerns over the trade policies of the Trump administration looking set to persist for some time to come.

Draghi said strong eurozone data had "strengthened further our confidence that inflation will converge to our inflation aim of below or close to 2%". They may change their communication on the outlook for policy at the same time, according to a Bloomberg survey conducted before Thursday's meeting.

Earnings are expected from companies such as Dow components 3M Co, Caterpillar Inc and Intel Corp on Thursday.

U.S. Treasury Secretary Steven Mnuchin said on Wednesday that he welcomed the weaker dollar because it was "good for us". Commerce Secretary Wilbur Ross suggested at Davos that the US could enact more levies.

The dollar's index against a basket of major currencies stood at 90.36, not far off its three-year low of 90.104 touched on January 17.

Barring any last minute changes in Washington, Trump will join world leaders and senior executives in Davos for the annual World Economic Forum. But while noting that the exchange rate was a risk, he went on to say part of the reason for the strengthening in the euro was the improvement in the European economy (the IFO business survey that latest European economic indicator to exceed expectations overnight).

Europe's benchmark STOXX 600 equity index gave up gains to trade 0.1 percent lower as the euro rose, while euro zone stocks remained in positive territory, up 0.1 percent. And it has depreciated further this year (and even more today). This has contributed to the euro performing at 1.234 against the dollar, its best performance since end 2014.

The main refi rate is now at a record low zero percent and the deposit rate at -0.40 percent.

The region's four main currencies - the crown, the forint, the leu and the zloty - all eased slightly against the euro, led by the Hungarian unit, which shed 0.2 percent by 0845 GMT.

With the euro having rallied strongly over the last couple of months following a brief correction after quantitative easing was last extended, I wonder how priced in a more hawkish European Central Bank is and whether the lack of a hawkish shift today may weaken the single currency.

The Japanese yen climbed 0.5 percent to 108.72 per dollar, the strongest in nearly 20 weeks.

The MSCI Emerging Markets Currency Index jumped 0.9 percent on the largest climb in more than a year. The 10 year Treasury yield spiked higher initially after the European Central Bank meeting, but has since moved back to 2.63%, similar to this time yesterday.

French 10-year bond yields also attained a 6-month high around 0.9270 percent, while 10-year borrowing costs across the euro area were 2-5 basis points higher on the day.