Euro tumbles after slightly higher-than-expected U.S. inflation data: Oct 23, 2014

Market Review - 22/10/2014 22:46GMT

Euro tumbles after slightly higher-than-expected U.S. inflation data

The single currency tumbled to 1.2647 after the release of slightly higher-than-expected U.S. inflation data together with earlier concerns over European banks.

U.S. CPI m/m and y/y came in slightly higher-than-expected at 0.1% and 1.7% versus forecasts of 0.0% and 1.6%. Core CPI m/m and y/y came in at 0.1% and 1.7% versus forecasts of 0.2% and 1.7% respectively.

ECB's Nowotny said 'corporate bonds are one of the markets that are still an option to grow balance sheet; there has been no discussion on buying corporate bonds in the governing council and no decision; buying corporate bonds would have effect of increasing balance sheet, but must look first at technical possibilities; might support QE if we were to see an imminent danger of a longer-lasting deflationary perspective; inflation expectations remain "quite obviously still anchored".'

EU's Juncker said 'determined to push through 300 billion euro investment programme for EU; will put forward investment plan before Christmas; need targeted investments focused on medium-term growth, must work with private sector; EU budget rules will not be changed but will be implemented with degree of flexibility.'

U.S. Treasury Secretary Jack Lew said in a meeting with German Vice Chancellor Sigmar Gabriel that Germany and other European countries should "boost domestic demand as part of an appropriate fiscal, monetary, and structural policy mix."

Despite dollar's brief retreat fm Australian high at 107.11 to 106.79 in European morning on Wednesday, the greenback ratcheted higher and then rose to a session high at 107.37/38 in US morning after the release of slightly higher-than-expected U.S. CPI data before easing on the decline in U.S. equities.

Japan PM Shinzo Abe's adviser Honda who said next sales tax hike should be delayed until Apr 2-17; 2nd sales tax hike could pose big risk to economy; inflation expected to hit close to 2% around end of next year; don't think delay in next sales tax hike would cause loss of confidence in Japan's public finances.

Despite staging a brief bounce from Australian low of 1.6107 to 1.6131 at European open on Wednesday, the British pound nose-dived to 1.6012 after the release of 'dovish' BOE minutes. Cable later rebounded to 1.6079 on short-covering in NY morning befoer falling again in late US session.

BoE's minutes showed most of the MPC members were firmly against raising interest rates n saw "few signs" of inflation pressure building. BoE stated in its meeting minutes that 'UK output gap, while still falling, estimated to be slightly higher in H2 than previously expected; most MPC members saw few signs of inflation pressure in UK, even after looking through effects of stronger sterling; most MPC members felt premature tightening of policy might leave UK economy vulnerable to shocks; 2 MPC members feared keeping rates low might unbalance recovery; further downside news in Eurozone increased risks to durable UK recovery; signs of a slight loss of momentum in UK economy, consistent with bank's expectations; confirms forecast for 0.9% growth in GDP in Q3.'

Thursday will see the release of New Zealand CPI, Japan manufacturing PMI, China HSBC manufacturing PMI, France business climate, manufacturing PMI, services PMI, Germany manufacturing PMI, services PMI, EU manufacturing PMI, services PMI, Italy trade balance, UK retail sales, CBI trends, U.S. home price index, jobless claims, manufacturing PMI, leading index and consumer confidence.