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Euro falls as ECB disappoints investors

Euro falls as ECB disappoints investors

27 July 2018

The euro exchange rate stumble on Thursday after the European Central Bank decided to hold on tight to is monetary policy despite investors’ hopes. There will be no change in the near future to the low rate strategy. Dollar reached five-days high on Friday.

ECB with dovish approach

The European Central Bank decided to keep its low rate monetary policy for the foreseeable future. There won’t be any change in the schedule of policy and quicker end of the program of 2.6 trillion-euro asset bond purchase.  The stimulus program will be scratched only at the end of the year, whereas rates will remain as they are until at least next summer. Mario Draghi, the ECB president, said on a press conference that the Bank is confident when it comes to regional inflation. According to him, it will get to 2 percent goal set by ECB without taking any actions by the Bank. Draghi claims that rising tariffs and trade barriers would only hurt inflation and get it off the rails to achieve the goal. Investors read this as a dovish approach to the matter and were disappointed as many decided to sell euro. As a result, the common currency exchange rate was down to $1.16580, by 0.6 percent. Against the Yen, it went down as much as by 0.46 percent to 129.525 yen. On Friday morning, the Euro gained a bit, making up for its losses. The exchange rate remained stable at $1.1654. The end of the weak results denied the Wednesday’s good exchange rate. As investors waited for meeting between US President Donald Trump and European Commission President Jean-Claude Juncker, the Euro edged a bit higher. Investors remained hopeful, but not over optimistic when it comes to the meeting. The ECB’s decision though, ruined any hopes. It is clear to see that generally the Euro exchange rate remains highly unaffected by a possible trade war between the US and Europe. Internal monetary policy and European affairs influence it in much stronger way.

Dollar enjoys a good ride

The Euro’s struggle helped the US dollar reach heights this week. The currency has been climbing the whole week reaching on Friday its five-days high. On Friday it gained against the basket of its main rival currencies by 0.4 percent. The index was at 94.796. Not only the Euro’s bad shape aided the US dollar to hit the high patch. The support came also from the US Treasury note yield. The 10-year note yield hit three percent point – a six-week high, extending its rise through another night. Also, there was published some good economy data. US durable goods order and jobless claims results were good enough to believe that the annualized rate of the economy in the second quarter may have grown by 4.1 percent. If that is confirmed, it will mean a huge improvement from the first quarter, where growth was at 2.0 percent.

Other currencies’ news

The stronger dollar affected also the British Pound that fell half a percent on Thursday. Apart form currencies’ market, the British Pound is obviously still highly affected by the Brexit ongoing negotiations. Even though the Bank of England is expected to hike interest rates next week, positive impact of those expectations are offset by the uncertainty on how the Brexit would look like. There are eight months left until the deadline and still no one is sure how the trade will look like after the exit of the Great Britain form the European Union. On Friday, the Pound remained flat against the dollar with $1.3123. Meanwhile, the Australian dollar edged a bit higher – up 0.2 percent to $0.7392 as it recovered from the Wednesday and Thursday troubles. On Wednesday the Australian dollar exchange rate against the US dollar was 0.2 percent down at $0.7407 after economic data showed inflation at a low rate in the second quarter.

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