[B]Market Review [/B]- 12/02/2014 [I]21:03GMT [/I]
[B]The single currency weakens after ECB official comments[/B]
The euro fell sharply against the dollar on Wednesday after a senior European Central Bank official said the bank is seriously considering negative deposit rates. ECB Executive Board member Benoit Coeure said that ‘“the status of the OMT is not changed” after German court decision; OMT is ready to be used but it is highly unlikely it would be needed at the moment; ECB is considering negative deposit rate “very seriously”; but you should not expect too much of “it”; don’t see deflation in the euro zone, see inflation slowly rising back to 2%; there is a risk of another wave of bank deleveraging after the AQR.’
During the day, although euro traded sideways in Asia on Wednesday and then bounced briefly to 1.3653 in European morning, active cross-selling of euro versus yen and sterling capped intra-day gain there and the single currency later tumbled after ECB official negative deposit rate talk
before staging a stabilizing to as low as 1.3563 in New York morning before recovering.
Despite cable’s brief drop from 1.6475 to 1.6425 in early European trading, the British pound rallied again the dollar to a near 2-week high of 1.6558 after the Bank of England outlined a new forward guidance policy and upgraded its forecast for economic growth this year. Later, profit-taking pressured price down to 1.6511 before another round of fresh buying lifted price higher to as high as 1.6600 in New York.
Bank of England indicated that it will keep interest rates on hold at record lows of 0.5% for at least another year, despite upgrading the U.K. economic growth forecast for 2014 to 3.4% from 2.8%. The bank outlined new forward guidance, saying that it will not raise rates until the spare capacity in the U.K. economy has been fully absorbed, which it does not see happening until 2015. BoE Governor Mark Carney said the U.K. unemployment rate has fallen much faster than the bank anticipated, and will hit the initial 7% threshold ‘in the spring’. In the six months since forward guidance was implemented the U.K. unemployment rate has fallen to 7.1% from 7.8%.
Versus the Japanese yen, dollar met renewed selling just below Tuesday’s high of 102.71 in Australia and price fell from 102.68 to 102.42 in Asia and then further to 102.22 ahead of New York open due to active cross-buying in yen versus other currencies. Later in the day, price recovered to 102.60 in New York before trading sideways.
In other news, European Central Bank Governing Council member Ardo Hansson said ‘There is no risk of deflation in the euro zone at present and it would take “a major shock” to the bloc’s economy to create such a risk.’ European Commission, U.S. CFTC say made significant progress on harmonizing new rules for trading swaps. ECB’s Noyer says ‘euro’s strength is “curious” given that Eurozone’s recovery is lagging the U.S.’
[B]Data to be released on Thursday: [/B]
Japan’s domestic CGPI, U.K. RICS house price balance, Australia’s employment change and unemployment rate, Germany’s CPI, U.S. retail sales and initial jobless claims.