Mundane markets this Monday, the Australian Dollar (currency:AUD) has gained, the Euro (currency:EUR) has lost but other currencies are still trading in the same tight ranges as last week.
The Euro was the biggest loser on the day after the European Central Bank stepped up its rhetoric to keep the common currency from strengthening, a weaker Euro is needed to rebalance the economy, Europe is desperate to encourage exports and bolster their underperforming manufacturing sector.
“It’s only a matter of time that the ECB will step in with more monetary easing, that’ll keep the Euro weak for a long time to come," said a senior Forex trader today, “ we are still a sell on any Euro rallies.”
Banks are downgrading their forecasts for the Euro. European bond and stock markets are also taking a bit of a bath at the moment, the gap between UK growth and growth in the rest of Europe is widening, it’s only a matter of time before this is reflected in the exchange rate.
The Pound continued to lose value versus a fast rebounding Australian Dollar but remained static versus the Dollar.
Investors seem to be waiting for a raft of UK data on jobs and inflation due later this week before taking further Sterling positions.
A fall in UK inflation would ease pressure on the BoE to tighten policy and could weaken the Pound; UK inflation could easily be dropping faster than expected.
Weak inflation data could be counterbalanced by a strong performance in the jobs market and a further pick-up in wages could heighten expectations for a rate hike by the Bank of England.
The Dollar has proven its resilience over the past few weeks, it looks like the days of weak Dollar are behind us, the Dollar has been propped up by safe-haven flows caused by tension between Russia and Ukraine global tensions are accelerating, pro-Russian separatists have been given a deadline to disarm or face a "full-scale anti-terrorist operation" e.g. War! This could prove Dollar positive in the medium term.