Euro falls after senior ECB's policymaker hints at fresh stimulus: Aug 27, 2015

Market Review - 26/08/2015 22:17GMT 
 
Euro falls after senior ECB’s policymaker hints at fresh stimulus

The single currency fell against the dollar on Wednesday as a senior European Central Bank policymaker warned that the risks to its short-term inflation target have increased and hinted at fresh easing to combat deflation.

ECB Executive Board member Peter Praet told reporters on Wednesday in Mannheim, Germany, 'global economic risk, commodity prices raise downside risk to inflation; no ambiguity in ECB's ability and willingness to act; asset purchase programme provides flexibility; ECB needs to think about consequences in pricing of risk amid market volatility; council will have to take into account increased inflation risk.'


During the day, euro came under renewed selling pressure after a brief rise to 1.1562 at Asian open and fell to 1.1465 at European open. Later, despite an intra-day recovery to 1.1520 in European trading, price ratcheted lower and weakened further after remarks from ECB's Praet had significantly increased the chances that the ECB will step up or extend QE as soon as next month's meeting. The single currency eventually dropped to 1.1352 in New York morning before staging a bounce to 1.1438 but later hit session lows of 1.1292 after U.S. stocks rallied strongly..

Versus the Japanese yen, U.S. dollar ratcheted higher after finding support at 118.45 at Asian open and then rallied to 119.83 as intra-day rally in Nikkei index improved risk appetite. Later, the pair rose marginally higher to 119.92 in New York morning after release of an unexpectedly rise of U.S. durable goods orders in July before retreating to 118.92 on 'dovish' remarks from Fed's Dudley, however, dollar later climbed to 120.02 near New York close.

New York Fed President William Dudley said 'global market turmoil could affect U.S. employment prospects; international developments have increased downside risks to U.S. economy; cites oil as a threat to U.S. economy; September rate hike seems less compelling to me than it was a few weeks ago; important not to overreact to global market turmoil; Fed remains data dependent; international financial market developments impacts calculus on timing of U.S. rate hike; expects dollar, oil effects to be transitory on U.S. inflation; China economic slowdown could effect prices of U.S. goods and services; "short term" market volatility does not have significant implications for U.S. economic recovery; "large and prolonged" drop in stock market could have implications for U.S. outlook; wants to see more data before making judgment on timing of rate hike; Chinese officials still have many policy tools to facilitate transition in economy; global market turmoil unlikely to immediately affect U.S. economic data; global market turmoil "is not a U.S. problem," it's about "developments abroad".' Later, he added '"we are a long way from" additional quantitative easing; risk of contagion from possible Peurto Rico restructuring unlikely to affect rest of U.S.'

On the data front, U.S. Commerce Department said that total durable goods orders, which include transportation items, increased by a seasonally adjusted 2.0% last month, compared to expectations for a decline of 0.4%. Orders for durable goods in June were revised to a gain of 4.1% from a previously reported increase of 3.4%. Meanwhile, core durable goods orders, excluding volatile transportation items, inched up by a seasonally adjusted 0.6%, topping forecasts for an increase of 0.4%. Core durable goods orders rose 1.0% in June, whose figure was revised from previously reported gain of 0.6%.

The British pound tumbled against the U.S. dollar on Wednesday. Cable started to fall after meeting renewed selling interest at 1.5721 in Asia and then tumbled to a low of 1.5467 in New York afternoon before stabilising.

Data to be released on Thursday:

Australia building capex, capital expenditure, U.K. Nationwide house price, Germany import price, France business climate, Switzerland industrial orders, and U.S. jobless claims, GDP, PCE and pending home sales. Jackson Hole Economic Policy Symposium "Inflation Dynamics and Monetary Policy" (to Aug. 29)