[B]Market Review[/B] - 25/03/2014 [I]18:45GMT [/I]
[B]Euro drops on dovish comments from ECB policymakers before rebounding on short-covering[/B]
The single currency weakened against the greenback on Tuesday after comments from ECB policymakers Weidmann, Makuch and Draghi that triggered broad-based selling of euro, however, price rebounded on short-covering above last Thur’s 2-week low at 1.3749 together with renewed risk appetite.
Although the single currency traded sideways in Asia and briefly edged up to session high at 1.3848 in European morning, price met renewed selling there and fell to an intra-day low at 1.3749 in New York midday, weighed by comments made from ECB’s Weidmann, Makuch and Draghi. Later, the pair rebounded strongly to 1.3845 on active short-covering due to the rise in U.S. stock markets.
ECB Governing Council member Jozef Makush said ‘ECB has many possibilities, one of them is adding liquidity; there are higher deflation risks in Eurozone, that’s why we are preparing additional non-standard measures to avoid deflation environment; number of members of ECB Governing Council are ready to take decisive steps if needed.’
ECB’s Weidmann said ‘QE programme is not out of the question, must avoid monetary financing; must tighten monetary policy shud risks to price stability emerge, this shud be dominated neither by fiscal nor financial stability concerns.’
ECB President Mario Draghi said ‘stands ready to take additional monetary policy measures to maintain price stability; urges banks to deal with balance sheet problems before health check results.’ However, Draghi said later that “the European Central bank does not see any signs that consumers are putting off spending in anticipation that prices will fall, which is a key symptom of deflation.” He added the ECB was carefully monitoring exchange rate developments because of their importance for price stability and economic growth.
The British pound edged lower to session low at 1.6481 at European open, however, price strengthened in European morning after the release of UK inflation data and rose to an intra-day high at 1.6550 in New York midday due partly to cross-buying of sterling vs euro.
UK CPI m/n and y/y came in as expected at 0.5% n 1.7% respectively. RPI m/m and y/y came in slightly higher at 0.6% and 2.7% vs forecasts of 0.5% and 2.6% respectively.
Versus the Japanese yen, despite a brief rebound to 102.35 in Asia, price retreated to session low at 102.10 in early European morning. However, renewed buying there lifted the pair and dollar rose to an intra-day high at 102.49 in New York morning, helped by the release of better-than-expected U.S. consumer confidence before falling sharply to 102.20.
U.S. consumer confidence came in better-than-expected at 82.3 vs forecast of 78.5.
In other news, Fed’s Plosser said ‘Fed has not changed its position; Yellen did not make a mistake with “six months comments”.’
[B]Data to be released on Wednesday: [/B]
Germany Gfk consumer confidence, Swiss UBS consumption indicator, Italy retail sales, consumer confidence and U.S. durable goods.