Euro Rises Ahead of ECB Decision
The European Central Bank’s (ECB) meeting today in Frankfurt dominates the news. Investors and traders are waiting to listen to what the ECB’s board has decided on the issue of interest rates and if the Eurozone’s central bank will start reducing its asset purchasing programme. The meeting will be followed by a press conference, where the ECB’s head Mario Draghi is expected to be bombed with questions on those matters.
In the US, President Donald Trump made one more move which showed that he is running the show single-handedly in Washington. Trump completely ignored advice by Republican leaders who urged him to press the Democrats to agree in a debt ceiling rise for the next eighteen months. Instead, the President made a deal with the Democrats for a debt ceiling rise until the end of the year, infuriating the Republican leadership and surprising the rest of the political world and the markets.
Pound Sterling – UK Markets
Today, the Pound weakened against the Euro with the exchange rate set at €1.09. Sterling edged up against the US Dollar with the exchange rate set at $1.30.
A survey by Halifax showed that house prices in the UK rose in August by 1.1%, on a month-to-month basis. The result was surprisingly good as analysts were anticipating a 0.2% increase. This is the highest figure recorded in the last eight months. The annual house price growth increased by 2.6% and the average price of a house in Britain is currently £222,293. Some economists suggest that, despite the increase of prices in August, prices will likely rise only 2% over 2017 and 2% more over 2018. The Halifax survey results come in contrast to Nationwide’s report which said that house prices in August dipped by 0.1%, on a monthly basis.
Michel Barnier, the European Union’s (EU) chief negotiator, will reveal, later today, details on how the EU wants to deal with the problem of Northern Ireland’s borders post-Brexit. According to a document leaked to the British media, Barnier will call on Britain to find a “unique solution” so the free movement of people across the Irish border will continue without obstruction. Simon Coveney, the Irish foreign minister, met with Barnier a few days ago in Brussels and said that the UK’s decision to leave the EU had potentially a negative impact on Ireland and, in general, on the island.
US Dollar – US Markets
The US Dollar fell against the Euro, with the exchange rate set at €0.83. The US Dollar Index (DXY), which measures the value of the Dollar against six major currencies, also dropped to 92.07.
Donald Trump once again surprised everyone when he agreed in siding with the Democrats to support a deal that would raise the debt ceiling until the end of December and would fund the Hurricane Harvey relief aid. The US President expressed his satisfaction for the deal saying that “we had a very good meeting. We essentially came to a deal and I think the deal will be very good.”
Earlier on Wednesday, House Speaker Paul Ryan had called the Democrats’ proposal for a short increase in the debt limit “a ridiculous idea.” Trump ignored Steven Mnuchin’s concerns about the increase being a short-term measure. The President’s decision annoyed the Republican congressional leaders who didn’t expect that Trump wouldn’t take into consideration their proposal for raising the debt ceiling for the next eighteen months. An ING report said that the news will pave the way for the Fed to announce its balance sheet reduction programme, later this month.
Euro – European Markets
The Euro jumped against the US Dollar with the exchange rate set at $1.19. The single market currency strengthened against all its major competitors, except the Swiss Franc. The Euro was boosted as traders are expecting the results of the ECB’s September meeting, today in Frankfurt.
Market analysts suggest that the ECB won’t decide to increase its benchmark interest rate. They also believe that the central bank will keep steady the deposit rate at -0.4%. However, analysts are split on when the ECB will announce the reduction of its asset purchase programme, which started some years ago to limit the consequences from the financial crisis in the Eurozone. One group of experts believes that Mario Draghi will announce the date of cutting bond purchases today, while the second one suggests that the announcement will be delayed until the next ECB meeting in October.
Earlier, Eurostat released data regarding the Eurozone’s GDP growth in the second quarter of the year. According to data, Eurozone’s economy expanded by 2.3%, on a yearly basis, which is a bit better than the 2.2% anticipated by analysts. On a quarterly basis, the Eurozone’s GDP increased by 0.6%, in line with expectations. Consumer spending increased by 0.5%, investments surged 0.9%, exports and imports rose by 1.1% and 0.9%, respectively.
Other Currencies – Highlights
Sterling dipped against the Australian Dollar, trading at 1.63 AUD. July’s retail sales in Australia remained flat, instead of rising by 0.2%. Westpac’s analysts said that the soft outcome confirms that the second quarter rebound in sales has faded, with sluggish wage growth weighing on spending. Australia’s trade balance surplus shrank in July registering at AUD 460m. According to a TDS report, exports by country rose in China, but big drops were recorded in Japan and South Korea due to weakness in coal prices.
The Pound edged up against the New Zealand Dollar, trading at 1.81 NZD. The Kiwi hit a two-year high in July, but since then has been forced to a sharp downside correction caused by the unease of the central bank about the strength of the currency and the upcoming parliamentary election. A poll showed that the Labour Party maintains a lead over the ruling National Party (43% to 39%). The populist NZ First party comes third with 9%.
Sterling continued dropping against the Japanese Yen, trading at ¥142.2. Youichi Miyazawa, the ruling Liberal Democratic Party tax panel chief said to Bloomberg that talks about new taxes will include raising sales tax in 2019. He added that the personal income tax reform will be the main topic of talks.