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19 Feb 2016
Fed and ECB March decisions are already starting to cast a shadow - Commerzbank
The economic data due for publication next week will cause hardly any movement on the FX market according to Esther Reichelt, analyst at Commerzbank. “That said, monetary policy decisions by the Fed and ECB in March are already starting to cast a shadow. The darker the signs from the economy, the bigger the measures could be”.
Key Quotes
“The FX market has no time for a breather. While the oil price is bottoming out, which is supporting commodity currencies, and risk aversion has not increased any further at least, after Chinese markets have opened more quietly than feared after the New Year celebrations. But there can still be no question of a general easing of the situation on the FX market."
“The focus is turning to the Fed and ECB monetary policy meetings in March. And it is regarded as certain that the ECB will loosen monetary policy further. How and to what extent depends on how much it corrects its growth and inflation projections downwards – and how the euro behaves.”
“The Purchasing Managers‘ Indices should show at the beginning of the week that the headwinds from the global economy have also strengthened in the euro zone. Up to now, the FX market has not expected the ECB to weaken on a lasting basis. The euro on a trade-weighted basis has edged away from its 12-month high again but is still at a high level. Sentiment indicators would presumably need to fall significantly for the euro to weaken.”
“The paradox is, the stronger the euro remains, the greater the likelihood that the ECB will decide on a bigger package of measures to weaken the euro on a lasting basis”.
“The data on durable goods orders in the USA could bring some relief. This will be published on Thursday and could dampen fears of a longer-term slowdown of the US economy. We expect a solid result which would leave the door open for further interest rate rises.”
“That said, the scepticism of the FX market remains high and doubts are growing about the fundamental power of central banks. While both Benoit Coeuré of the ECB and BoJ Governor Haruhiko Kuroda have announced that they want to discuss possibilities of global policy coordination at the G20 meeting on 26 and 27 February, the chances of an agreement are low because no central bank is willing to accept an appreciation of their currency.”
Key Quotes
“The FX market has no time for a breather. While the oil price is bottoming out, which is supporting commodity currencies, and risk aversion has not increased any further at least, after Chinese markets have opened more quietly than feared after the New Year celebrations. But there can still be no question of a general easing of the situation on the FX market."
“The focus is turning to the Fed and ECB monetary policy meetings in March. And it is regarded as certain that the ECB will loosen monetary policy further. How and to what extent depends on how much it corrects its growth and inflation projections downwards – and how the euro behaves.”
“The Purchasing Managers‘ Indices should show at the beginning of the week that the headwinds from the global economy have also strengthened in the euro zone. Up to now, the FX market has not expected the ECB to weaken on a lasting basis. The euro on a trade-weighted basis has edged away from its 12-month high again but is still at a high level. Sentiment indicators would presumably need to fall significantly for the euro to weaken.”
“The paradox is, the stronger the euro remains, the greater the likelihood that the ECB will decide on a bigger package of measures to weaken the euro on a lasting basis”.
“The data on durable goods orders in the USA could bring some relief. This will be published on Thursday and could dampen fears of a longer-term slowdown of the US economy. We expect a solid result which would leave the door open for further interest rate rises.”
“That said, the scepticism of the FX market remains high and doubts are growing about the fundamental power of central banks. While both Benoit Coeuré of the ECB and BoJ Governor Haruhiko Kuroda have announced that they want to discuss possibilities of global policy coordination at the G20 meeting on 26 and 27 February, the chances of an agreement are low because no central bank is willing to accept an appreciation of their currency.”