The euro is recovering this morning adding 10 pips to trade at 1.3704 after just a week ago traders were hoping to see the currency break the 1.40 level. Market focus this morning is an upcoming speech from the Director of the German Central Bank, which has already endorsed additional stimulus program urging the ECB to act at its next meeting. ECB officials faced with a stumbling economy and inflation stuck at less than half their goal have flirted with the idea of adding stimulus via asset purchases, akin to quantitative easing, only to be confronted with a shortage of suitable instruments. The complexity presented by 18 government debt markets means Draghi is instead priming investors for more limited action such as interest-rate cuts for now.
Eurozone data showed GDP expanded just 0.2 per cent last quarter, half as much as economists predicted, with France unexpectedly stagnating and economies from Italy to the Netherlands shrinking. Inflation has been below one per cent since October, compared with the ECB’s goal of just under two per cent. Draghi said last week that officials are “comfortable” with acting at their next monetary policy meeting, and ECB Executive Board member Yves Mersch said yesterday that policy makers are working on a broader range of instruments that “might even strike the most fertile imagination.” The ECB’s 24-member Governing Council will release revised macroeconomic forecasts at its meeting on June 5 in Frankfurt. That’ll help it decide whether the medium-term outlook for prices is worsening, a contingency which Draghi said last month would justify broad-based asset purchases.
The other major currencies were equally quiet after a peaceful weekend with little and little news. The greenback traded at 80.08, near where it closed last week after notching up a modest 0.2 percent gain.
Commodity currencies were sluggish as well with the Australian dollar just a touch firmer at $0.9366 following a flat week. Traders said the 94 U.S. cent level is still providing a cap for the Aussie for now. The kiwi was in the green at 0.8649 climbing after the release of PPI which gained more than expected moving up to 0.1%
This week’s main market focus will be the release of FOMC minutes on Wednesday and UK GDP updates. Minutes of the Federal Reserve April 29-30 policy meeting could shake up the markets as well as the HSBC survey on China’s manufacturing sector for May.
The Japanese yen is trading at 101.56 against the greenback and at 139.18 against the weak euro. Last week data showed that Japan’s economy grew an annualized 5.9 percent from the previous quarter, the fastest pace since 2011 as companies stepped up investment and consumers splurged before the first sales-tax rise in 17 years last month. The growth rate compared with a 4.2 percent median estimate in a Bloomberg survey of economists. There is no news expected in the Asian region today so currency markets are expected to remain quiet.