It was a cracking week for the euro. Boosted by soft rhetoric from Fed Chairman Jerome Powell and confidence-boosting July-meeting minutes from the ECB, the euro gained against all other G10 currencies.
Of special note last week was the euro’s 1.6 percent gain against the US dollar (its best week versus the dollar since July 2017) and a 0.85 percent gain versus the pound, which took the euro-pound cross to an eleven-month high. The euro gained for a fourth consecutive week against the Swedish krona, this time by 1.25 percent, and now looks on course to attack long-term highs. EUR/USD, EUR/GBP and EUR/SEK settled on Friday at 1.1619, 0.9042 and 10.598 respectively.
It could have been different had Jerome Powell stirred things up on Friday at the Jackson Hole symposium, but the best he came up with indicated that the Fed saw “no clear sign of an acceleration [in US inflation] above 2 percent” and no “elevated risk of overheating,” which allowed for risk-on.
In Thursday’s minutes from the ECB’s July 26th meeting, the bank expressed confidence in its ability to scale back on its massive bong-buying program without jeopardizing the eurozone’s economic recovery. In its meeting, decision makers at the ECB shared the view that “uncertainties surrounding the inflation outlook had been receding,” that the eurozone would grow at a “solid pace” and that risks were “broadly balanced.”
Looking ahead, “weekly technical patterns are potentially euro positive,” indicates Scotiabank’s latest market commentary. Scotia’s August forecasts have EUR/USD at 1.20 by year-end.
Meanwhile, Credit Agricole are recommending buying the euro against the Swiss franc. The bank argues that an imminent improvement in market sentiment “should increase selling interest in funding currencies such as the franc; whereas, the euro should stay subject to upside risk from positioning and scope of improving fundamentals.” CA expects EUR/CHF to head back towards 1.20 in the coming months, from its current position in the low 1.14s.
ING are “mildly bullish” on the euro but are highlighting “short-term limiting factors,” and these include the difficult economic situation in Turkey and next week’s potentially troublesome Fitch review of Italy’s sovereign debt.
The threat of a proxy war between the US and Iran in Iraq has pared back some of the recent gains of “risk-on” currencies.
Last update: 8 Jan, 2020
Both the Australian dollar and British pound sterling have had a hard time of late caught between the rock of the China/US trade war and the Brexit hard place.
Last update: 7 Jan, 2020
The RBA has cut Australian interest rates to a record low of 1 percent in an effort to boost inflation. The Australian dollar is slightly stronger following the widely expected decision but is expected to lose 5–7 percent of its value before year-end.
Last update: 7 Jan, 2020