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CURRENCY ANALYSIS

USD, EUR, GBP, JPY

USD, EUR, GBP, JPY, Currency Analysis , fx trader, forex

21 Oct 2016

● USD (NEER) – The dollar appreciated sharply, this time not on US data (the Philly Fed dropped, but less than expected, and home sales grew more than estimated) but on the outcome of the ECB meeting (see below). Barring disappointments from data, the dollar should stabilise at around its current levels.

● EUR – Post-ECB meeting, the euro dropped and reached our downside target of EUR/USD 1.08. As unanimously expected, the ECB left all monetary policy parameter unchanged.

● With respect to the macro outlook, the central bank noted that growth in the area is continuing at a moderate but stable pace, and that inflation is gradually rising back, although on this latter front it observed that the recovery in the near term is due at least in part to a favourable base effect, and that there are no signals of a convincing rise of core inflation.

● On the whole, the economy is proving resilient to shocks tied to heightened international uncertainties, although risks remain skewed to the downside. Therefore, the ECB has reasserted that rates will stay at their present levels, or lower if necessary, well beyond the termination data of QE, and that if needed the QE programme could be extended to beyond its current deadline in March 2017. Up to this point, the picture is broadly the same as presented at the previous meeting on 8 September. The important new development concerns the evolution of the internal debate.

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