Euro Slumped in Spite of Announced End Date of QE

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  • Rising Australian Participation Rate Dragged on AUD Exchange Rates - Australian Dollar retreats after Fed policy decision
  • Pound Failed to Hold Gains After Bullish UK Retail Sales Data - Concerns remain over outlook of UK economy
  • Federal Reserve Rate Hike Supported US Dollar Exchange Rates - Forecasts point towards two more 2018 interest rate hikes
  • ECB Announced End Date for Quantitative Easing Programme - Euro trended lower as central bank lowered its growth forecasts

Australian Dollar
Demand for the Australian Dollar diminished yesterday even as the unemployment rate unexpectedly dipped from 5.6% to 5.4% in May. Investors were more concerned by the corresponding decline in the participation rate, which indicated that there are now fewer Australians active within the labour market. Disappointing Chinese data and the prospect of the Federal Reserve raising interest rates two more times before the end of the year also dragged on AUD exchange rates.
Comments from Reserve Bank of Australia (RBA) policymaker Lucy Ellis are not expected to provoke any particular Australian Dollar reaction.
Initially GBP exchange rates rallied sharply on the back of May’s UK retail sales data, which showed growth of 4.4% on the year. The Pound failed to hold onto this bout of bullishness, however, as the underlying fundamentals of the UK retail sector remain a cause for concern. With pressure on high street retailers continuing to mount there are doubts that sales will be able to maintain this positive momentum in June.
Any fresh developments surrounding Brexit could trigger additional volatility for Sterling ahead of the weekend.
Although the European Central Bank (ECB) surprised markets by announcing an end date for its long-running quantitative easing programme the mood towards the Euro still soured on Thursday. As the central bank indicated that interest rates are not likely to rise until well into 2019 and emphasised a willingness to take further action in future. Markets were also discouraged by the ECB’s decision to cut its growth forecasts, acknowledging that the Eurozone economy is in a more sluggish state.
A narrowing of the Eurozone trade surplus is unlikely to offer EUR exchange rates any particular measure of support today.
US Dollar
After the Federal Reserve raised interest rates to 2.0%, in line with market forecasts, the appeal of the US Dollar improved. Further encouragement was in store for USD exchange rates as policymakers indicated an expectation that two more interest rate hikes will come before the end of the year. A stronger-than-expected uptick in May’s US advance retail sales data also helped to boost the US Dollar across the board.
Any improvement in the University of Michigan consumer sentiment index could encourage USD exchange rates to extend their gains further.
Canadian Dollar
April’s Canadian new housing price index offered investors little cause for confidence overnight, falling short of forecast. With the Canadian housing market showing signs of losing momentum this naturally put pressure on CAD exchange rates, suggesting weakness within the domestic economy. A fresh downtrend in oil prices added to the negative mood of the Canadian Dollar, meanwhile.
With forecasts pointing towards another monthly contraction in existing home sales for May the Canadian Dollar may struggle to find any encouragement ahead of the weekend.
New Zealand Dollar
NZD exchange rates remained on a somewhat stronger footing yesterday, even in the face of increased market risk aversion. A weaker REINZ house sales figure also made limited impact on the New Zealand Dollar, which continued to trend higher against many of the majors. While doubts remain over the strength of the domestic outlook investors were still keen to buy into NZD.
If the New Zealand manufacturing PMI weakens on the month, though, NZD exchange rates look vulnerable to downside pressure.

Data Released

June 15th 08:45    NZD    Manufacturing PMI (MAY)    
June 15th 19:00    EUR    Eurozone Trade Balance (APR)    20 billion
June 15th 23:00    CAD    Existing Home Sales (MoM) (MAY)    -1.4%
June 16th 00:00    USD    University of Michigan Sentiment Index (JUN P)    98.5

Post by TorFX

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