Euro Rate Hangs on ECB Statement
Sterling continues making gains against the US Dollar and is steady against the Euro, ahead of today’s highly anticipated statement by the European Central Bank (ECB). The announcement will be closely watched since any signal that the ECB is going to extend their asset purchase programme indefinitely may weaken the Euro. Today, prime minister Theresa May will speak about the UK becoming a global leader in the field of Artificial Intelligence at the World Economic Forum (WEF) in Davos. The prime minister will also meet with US president Donald Trump.
The Euro’s strength will rise or fall based on the announcement by the ECB, today. The ECB will likely seek to tamp down the Euro’s rise by expressing concerns about the persistent weakness in inflation growth. The Euro has gained over 2% this year, due to both a robust economic recovery and expectation that the ECB will unwind stimulus policies sooner than it had forecast.
Pound Sterling – UK Markets
The Pound has steadily surged against the US Dollar, with the exchange rate spiking up to $1.43 before adjusting down to $1.42. Ahead of today’s ECB announcement, Sterling is steady against the Euro, with the exchange rate at €1.14.
The British Bankers’ Association (BBA) Mortgage Approvals for December 2017 slipped to a rate of 36, 115, down from November’s figure of 39,007. According to UK Finance, this marks the lowest level of mortgage approvals by British banks since April 2013. The approval rate is 19% lower than it had been a year ago and has been blamed on November’s rise in interest rates. Also, annual growth in consumer credit was down from 0.8% to 0.7%.
JPMorgan CEO Jamie Dimon has reiterated his warnings that the US bank will cut its City jobs if the UK fails to secure “reciprocal recognition” of financial service rules after Brexit. Speaking at the WEF in Davos, Dimon estimated that the US’s most valuable bank could cut “more than 4,000” London financial positions. He said that a divergence in financial rules would threaten London’s future as a global financial centre.
Prime minister Theresa May will deliver a speech at the WEF in Davos today on the UK’s intention to become a world leader in shaping how to use artificial intelligence(AI) safely and ethically. Her address will also urge investment firms to pressure social media companies to shun extremist content. The PM will also be meeting with US president Donald Trump who will be speaking at the forum tomorrow. US Treasury Secretary Steven Mnuchin will be meeting with Chancellor Philip Hammond today after having said that the US “will be prepared to negotiate an attractive trade deal” as soon as the UK is ready to do so.
US Dollar – US Markets
The US Dollar slipped against the Euro, with the exchange rate down to €0.80. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, remains down, with a reading of 89.09.
The IHS Markit manufacturing Purchasing Managers Index for January grew from a December reading of 55.1 to 55.5, which indicates robust factory expansion. The Services PMI slipped lower from 53.7 to 53.3 which brought the Composite figure down from 54.1 to 53.8. The weaker Dollar was credited for the US’s expansion in manufacturing, in contrast to the Eurozone’s Manufacturing PMI, which constricted slightly.
Existing US home sales fell by 3.6% in December, which was much larger than the 2.2% fall that had been anticipated. December’s sales of 5.57million units marked the first decline in three months after November sales were revised down to 5.7million units from an earlier reading of 5.81million units. The National Association of Realtors noted that, although sales slumped in December, total sales in 2017 were up by 1.1%, marking the best annual volume of sales in 11 years.
The Solar Energy Industries Association has warned that president Donald Trump’s 30% tariff on imported solar panels will cost US workers 23,000 manufacturing jobs and another 130,000 installation jobs in 2018. The majority of US solar manufacturing involves making components for cheap imported panels, not producing the cells and panels. The solar industry has surged since the cost of installing solar panels has dropped by over 70% since 2010, according to the association. Higher costs could reduce demand and slow the expansion of clean, inexpensive energy warn US industry leaders.
Euro – European Markets
The Euro is trading higher against the US Dollar, with the exchange rate set at $1.24, ahead of today’s ECB policy announcement.
The Euro’s strength decreases the likelihood that the ECB president Mario Draghi will suggest the time is right to wind down the bank’s stimulus programme or consider raising interest rates this year. Draghi is caught in a delicate balancing act between keeping the Euro’s value down so that a stronger currency doesn’t threaten the economic growth the central bank’s programme helped create. The ECB will likely suggest the Eurozone’s improving strength is still fragile and point to weak inflation as incentives to continue the €2trillion asset buying programme.
January’s robust IHS Markit Purchasing Managers Index (PMI) Composite for January may be used to make a case for the ECB hastening the timing of their decision to reduce their programme of money printing. The Markit data shows that price pressures are increasing, and this slowly rising inflation may encourage the ECB to wind down their bond buying programme towards the end of this year. The strength of the Euro is forcing inflation to rise more slowly toward the 2% target rate, so there is no expectation of any interest rate hike this year.
The Eurozone PMI data released yesterday shows the economy of the bloc is expanding at its fastest rate of growth in nearly 12 years. The IHS Markit Purchasing Managers Index (PMI) release showed factory output was lower than had been expected, coming in at 59.6, rather than 60.4. However, companies increased employment to the highest levels since September 2,000. IHS Markit noted, “The latest three months have seen the strongest factory output increase since 2,000.”
Other Currencies – Highlights
Sterling slipped against the Australian Dollar, exchanging at 1.76 AUD. Analysts at Westpac predict that this year a reduction in Chinese demand for Australian commodities from 6.8% to 6.2% will have a negative impact on the Australian economy. They expect the fall in prices and demand will also weaken the Aussie Dollar, especially against its US counterpart.
The Pound is steady against the New Zealand Dollar, trading at 1.93 NZD. Inflation in New Zealand was weaker than anticipated, according to data released by Stats NZ. The Kiwi was weakened by the lower Consumer Price Index reading which will likely delay the Reserve Bank of New Zealand’s plans to raise interest rates until 2019.
The Pound made slight gains against the Japanese Yen with the exchange rate set at 155.62¥. The Yen has risen to it’s strongest levels against the US Dollar in around four months due to the Dollar weakening. The Bank of Japan (BoJ) has tried to drive the value of the currency down this week in order to protect corporate profits and exports.