A rise in risk appetite pushed the major currencies higher against the U.S. dollar during the overnight trade, with the euro paring Friday’s decline to reach a high of 1.2255, and the greenback may continue to lose ground going into the North American session as market sentiment continues to drive price action in the foreign exchange market.
Talking Points
• Japanese Yen: Weighed By Risk Appetite
• Pound: BoE Beginning to See Risks For Inflation
• Euro: Industrial Outputs Rise More-Than-Expected
• U.S. Dollar: Market Sentiment to Drive Price Action on Light Economic Calendar
Meanwhile, European Central Bank board member Ewald Nowotny said that the increased volatility in the exchange rate is “completely unproblematic” and does not give the Governing Council a “reason to act,” and went onto say that the recent shift in the exchange is “partly due to elements of speculation” during a speech in Vienna.
Moreover, Mr. Nowotny maintained a dovish outlook for the region and argued that the central bank’s asset purchase scheme does not pose a risk for inflation after the Nikkei newspaper cited him and reported that the Governing Council will continue to buy government bonds until the global financial market stabilizes. At the same time, the Governing Council board member reiterated that the extraordinary measures should not be conceived as a means of quantitative easing as the recovery gathers pace, and stated that budget consolidation is necessary for long-term growth. Nevertheless, the economic docket showed industrial outputs in the Euro-Zone increased 0.8% in April after expanding a revised 1.6% in the previous month, which topped expectations for a 0.5% rise, while the annualized rate jumped 9.5% from the previous year to mark the fastest pace of growth since the series began in 1991.
The British Pound bounced back on Monday and rallied to a high of 1.4752 to maintain the narrow range from the end of the previous week, and the exchange rate may continue to trend sideways during the second full-week of June as investors weigh the prospects for future policy. Former Bank of England Deputy Governor John Gieve said that there is a rapid improvement in the U.K.’s public finances and saw a better prospect for Britain compared to the Euro-Zone, and went onto say that global policy makers must take the necessary steps to avoid bubbles going forward while speaking in Tokyo. In addition, BoE board member Andrew Sentence wrote that recent “surveys point to some upward pressures on public inflation” in an article published in the Sunday Times, and noted that “the recovery in the economy and the resilience of inflation highlights the issue of how long such an expansionary policy will remain appropriate” as the central bank aims to balance the risks for the region. As the MPC is scheduled to release its policy meeting next week following the budget report on Tuesday, a shift in the outlook for monetary and fiscal policy could produce increased volatility in the exchange rate as the new coalition pledges to cut government spending and reduce the budget deficit.
The greenback weakened against most of its major counterparts, while the USD/JPY extended the rally from the previous week to reach a high of 92.10 as the Japanese Yen depreciated across the board. With a very light economic calendar scheduled for Monday, risk trends are likely to dictate price action throughout the day, and the reserve-currency may continue to push lower during the North American trade as equity futures foreshadow a higher open for the U.S. market.
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Forex Weekly Trading Forecast - 06.14.10
To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com
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