[B]Market Review - 07/02/2013 [I]18:55GMT [/I]
Euro tumbles on ECB Draghi’s warning[/B]
The single currency nose-dived against dollar and yen on Thursday as the European Central Bank President Mario Draghi said the risk to the region’s growth remained on the downside and exchange rate was important on growth and price stability, implying that the bank is worried about euro’s recent upmove.
Although the single currency rose from Asian low at 1.3504 to intra-day high at 1.3577 in European morning due to cross buying of euro versus yen, the pair tumbled below Tuesday’s 1.3458 low in New York morning as the European Central Bank President Mario Draghi said exchange rate was important for growth and price stability. Euro eventually hit a low of 1.3371 before stabilising.
ECB President Draghi held press conference after it announced to keep interest rate at 0.75%. He said ‘inflation is expected to fall below 2% in coming months; inflation pressures should remain contained; economic weakness in euro zone is expected to prevail in early 2013; economic activity should gradually recover later in 2013; data, survey signal further weakness in economic activity in Q4, beginning of 2013; financial market sentiment has improved; monetary policy accommodative; early 3-year LTRO repayment reflects improvement in financial market confidence; later in 2013, a gradual recovery should start; risks to growth outlook are on the downside; growth risks related mainly to slow implementation of reforms, geopolitical issues; exchange rate should reflect fundamentals; real, effective euro exchange rate close to its long-term average; exchange rate is important element in growth, price stability.’
The British pound edged higher from Asian low at 1.5646 and rallied to a high of 1.5768 in European morning as future Bank of England governor Mark Carney did not give any hints on looser monetary policy. However, the pair retreated to 1.5684 in New York morning due to the selloff in eur/usd and then traded narrowly for the rest of the day.
BOE governor-designate Mark Carney said ‘first core policy goal of BOE is to deliver price stability while promoting timely sustained recovery; BOE will need to design, implement and ultimately exit from unconventional monetary policy measures in a manner that reinforces public confidence; flexible inflation targeting has proven itself to be the most effective monetary policy framework implemented thus far; I have not made assessment of the merits of altering the monetary policy framework; risk to U.K. growth outlook from “huge uncertainty” about pace of recovery; I cannot see a circumstance where I would support “helicopter money”.’
Earlier in Europe, the Bank of England announced to keep interest rate and asset purchases target unchanged at 0.5% and 375B as expected. BOE said ‘to reinvest 6.6 billion sterlings in proceeds of QE gilts maturing in March; U.K. econ. output appears to be broadly flat; business surveys point to muted growth in near term; still sees slow, sustained recovery but risks weighted to downside; inflation is likely to rise further in the near term n remain above 2% for next two years; appropriate to look through temp. above target inflation, removing stimulus wud risk derailing recovery; stands ready to provide additional monetary stimulus if required.’
Versus the Japanese yen, although the greenback rose from Asian low at 93.30 to 93.92 in European morning due to cross selling of yen versus other currencies, the selloff of eur/jpy pressured the pair below Wednesday’s low at 93.28 to 93.08 in New York morning before staging a recovery to 93.52 in U.S. afternoon.
In other news, Ireland successfully completed latest review of EU-IMF bailout program. U.S. Fed Board Governor Jeremy Stein said ‘prolonged period of low rates, like current one, can create incentives for investors to take on greater duration or credit risks, or employ additional financial leverage.’
[B]Data to be released on Friday: [/B]
Japan Current account, Economic watch DI, China Consumer Price Index, Producer Price Index, Imports, Exports, Trade Balance, Swiss Unemployment rate, Retail sales, Germany Trade balance, Import, Export, Italy industrial production, U.S. Trade balance (usd), Wholesale inventories, Canada Housing starts, Unemployment rate, Net change in employment.