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Euro Exchange Rates In Strong Recovery Ahead Of High-Impact ECB Meeting Next Week

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Expect Something Significant from the ECB in Next Week’s Meeting. The Euro is recovering strongly ahead of next week’s important ECB meeting. Hints are being dropped that there will be announcement either next week, or in July. Praet makes multiple hawkish comments in a speech in Berlin.


A feature of central bank communication in recent years is the way market sensitive information such as policy change is leaked slowly prior to the actual announcement. This lowers volatility on the actual announcement as the market is well prepared and has had a chance to price in much of the changes.

With an important ECB meeting next week, it was about time we heard some hints of any significant changes to be announced, and right on cue, the market got not one but two hawkish clues.

Bloomberg ran an article on Tuesday evening hinting the June 14th meeting is “live”.

“European Central Bank policy makers anticipate holding a pivotal discussion at their meeting next week that could conclude with a public announcement on when they intend to cease asset purchases, according to euro-area officials familiar with the matter.

President Mario Draghi’s Governing Council is likely to treat the June 14 gathering in Latvia as an opportunity to debate winding down bond-buying, said the officials, who asked not to be named because such matters are confidential. Purchases are currently intended to run until at least September.”

Bloomberg ran an article on Tuesday evening hinting the June 14th meeting is “live”.

“European Central Bank policy makers anticipate holding a pivotal discussion at their meeting next week that could conclude with a public announcement on when they intend to cease asset purchases, according to euro-area officials familiar with the matter.

President Mario Draghi’s Governing Council is likely to treat the June 14 gathering in Latvia as an opportunity to debate winding down bond-buying, said the officials, who asked not to be named because such matters are confidential. Purchases are currently intended to run until at least September.”

“Signals showing the convergence of inflation towards our aim have been improving, and both the underlying strength in the euro area economy and the fact that such strength is increasingly affecting wage formation supports our confidence that inflation will reach a level of below, but close to, 2% over the medium term. As for our third criterion, resilience, waning market expectations of sizeable further expansions of our programme have been accompanied by inflation expectations that are increasingly consistent with our aim.“

After last month’s ECB meeting it was expected the ECB could keep delaying any further decisions due to the softening of EU data in the early part of the year. It was thought – and hoped - the dip in data may well be transitory, just as the dip in US inflation was last year, but clearly the council did not want to rush into any announcement until there was more clarity.

Recent data has been bullish again, and with oil expected to push inflation higher, it seems the ECB is no longer concerned.

“Praet also stressed the underlying strength of the eurozone economy, suggesting that the ECB considered the recent weakness in eurozone data as transitory. Contrary to previous comments, Praet sounded more optimistic that the recovery and higher wages would eventually lead to higher inflation. And he left out the caveats in recent months that hard data had not yet confirmed the ECB’s confidence in inflation picking up again,” reported ING.

These have been a positive driver for the Euro, and EURUD is back over 1.18; a far cry from the move below 1.16 just last week when Italian politics threatened the very core of the EU. It looks increasingly likely the bottom is in for EURUSD and it is now heading back above 1.2.

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