Euro proves resilient

Euro (CME:EDM14) currency bears were once again frustrated Tuesday following dovish overtures from a trio of officials. In mid-afternoon trading the euro is slightly lower versus the U.S. Dollar Index (NYBOT:DXH14) at $1.3820 but well off the session low of $1.3749. As the euro rises in value, it makes goods imported from outside the euro-bloc more affordable and has a favorable impact on consumer prices. However, CPI within the area is running at an already low rate possibly prompting fears over deflation amongst council members at the ECB. European Commission official Antonio Tajani today warned over the euro’s strength and while the EC can do little about policy settings, two prominent officials hinted they could. Bundesbank President Jens Weidmann said a discussion about introducing further stimulus was not out of the question. Meanwhile, one of the longest-serving ECB members, Erkki Liikanen told the Wall Street Journal that the central bank is open to a negative deposit rate. Earlier concerns over banks passing on negative deposit rates to savers had been overcome he suggested. Mr. Liikanen also raised the possibility of quantitative easing at the ECB. 

Despite the clear hints at the impact a strengthening economic recovery is having on the exchange rate, the momentum of the euro currency remains extremely strong. And with the rise since last week in yields at the short-end of the U.S. yield curve suggesting a stronger dollar, the ramp-up in the euro is all the more strange. US two-and-five-year yields remain elevated following comments from FOMC Chairman Yellen that appeared to suggest the central bank would lift its short-rate earlier than previously thought.

 

Euro trawled the day’s lows before gathering its poise

 

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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