Major Currency Pairs Analysis: Euro Firm Against The Dollar
ICM Brokers | Nov 25, 2014 02:48AM ET
EUR/USD
The euro firmed against the dollar on Monday after an upbeat German business climate report surpassed expectations and offset ongoing expectations for the European Central Bank to loosen policy in the near future. In U.S. trading, Euro was up 0.31% at 1.2429, up from a session low of 1.2363 and off a high of 1.2443. The single currency found support after a report showed that German business sentiment improved this month after six successive months of declines, indicating that the downturn the euro area’s largest economy may be ending. Germany’s Ifo business climate index rose to 104.7 from 103.2 in October, confounding forecasts for a decline to 103.0. The current conditions index rose to 110.0 from 108.4 last month and the expectations index improved to 99.7 from 98.3, both figures topping market forecasts. The data helped offset expectations that the European Central Bank may loosen policy further to stimulate the economy, possibly rolling out purchases of government bonds. Euro zone bond yields fell to record lows on Monday amid expectations that the ECB is moving closer to embarking on fresh stimulus measures to spur growth and inflation in the region. On Friday, ECB President Mario Draghi warned that inflation expectations were declining to levels that were very low and said the bank is ready to expand its stimulus program to boost inflation as quickly as possible. The ECB's current stimulus program includes purchases of asset-backed securities and covered bonds, though markets are keeping a close eye out for plans to announce purchases of government debt, a stimulus tool known as quantitative easing.
GBP/USD
Sterling climbed against the dollar before data this week that analysts said will show U.K. gross domestic product expanded in the third quarter. While BOE interest rates are at a record-low 0.5%, they are higher than those of the euro area and Japan, where policy makers are embarking on more stimulus measures that tend to devalue local currencies. U.K. 10-year government bonds ended a two-day advance, with yields rising from a five-week low. The U.K. currency rose 0.3 percent to 1.5702. It fell to $1.5590 on Nov. 19, the lowest since September 6, 2013. The pound slipped 0.1% to 79.22 pence per euro after reaching 79.03 pence, the strongest level since November 13. The Office for National Statistics will say on November 26 that GDP increased 0.7% in the three months through September, the same as the period through June, according to the estimate. U.K. exports fell 0.1% in the period, after a drop of 0.4% in the previous three months, according to the forecast.
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USD/JPY
Yen rebounded from near a seven-year low versus the dollar amid signs its decline had become overstretched and as Bank of Japan Governor Haruhiko Kuroda said the economy is on track to achieving policy makers’ 2 percent inflation target. Kuroda said in a speech in Nagoya today that core consumer-price gains are likely to reach 2% in or around the fiscal year starting next April, and efforts to end Japan’s deflationary mindset are progressing. The BOJ last month lifted the annual target for enlarging the monetary base to 80 trillion yen ($677 billion), from 60 trillion yen to 70 trillion yen. The policy board voted to retain the plan at the end of a two-day meeting on Nov. 19. Japan’s currency rose against all 16 major peers as a gauge of momentum signaled its drop versus the greenback since the end of last month has been too much, too soon. The BOJ released minutes today of its Oct. 31 meeting, when it surprised markets by expanding monetary stimulus two days after the Fed ended its bond-buying program. The yen gained 0.2 percent to 118.06 per dollar from yesterday, when it fell 0.4%. It reached 118.98 on November 20, the weakest since August 2007. The yen jumped 0.3% to 146.68 per euro, after yesterday’s 0.8% slide. The yen’s 14-day relative-strength index versus the dollar was at 22, and has been below the 30 line that signals to some traders that an asset is oversold every day since October31.
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