Draghi's Unprecedented Guidance Sparks Speculation

The European Central Bank's president Mario Draghi has pledged to keep interest rates low, using the phrase “an extended period of time”, which pertains to a period longer than a year. The Frankfurt-based central bank will keep its benchmark interest rate unchanged until at least 2015, the median forecast of 34 economists shows. Draghi’s unprecedented guidance that benchmark borrowing costs will stay at their present level or lower for a while has since sparked speculation to the actual timeframe he has committed to. The euro dropped a cent on July 9 after Executive Board member Joerg Asmussen said he meant more than 12 months.
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GBP/USD
The pound strengthened for a second day against the dollar after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy still needed stimulus. U.K. government bonds rose for a fourth day as the U.K. Debt Management Office sold 2.5 billion pounds ($3.78 billion) of 30-year gilts. The Bank of England’s Monetary Policy Committee kept its asset-purchase target at 375 billion pounds on July 4. The minutes of the meeting will be released on July 17.The pound advanced 0.8 percent to $1.5120.
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USD/JPY
The yen’s 20 percent drop since the middle of November completed the first stage of its “normalization,” which will continue until the currency reaches 120 per dollar in 12 months, according to Ray Farris, global head of currency strategy at Credit Suisse. The daily chart below shows the yen remains stronger than its average of 116.6 per dollar from 1990 to 2008, before the global financial crisis and Japan’s record 2011 earthquake triggered the currency’s surge to post-war highs. The yen can weaken a lot more in terms of its historical valuations,” Farris said in an e-mailed response to questions. The combination of continued monetary easing by Japan’s central bank while the Federal Reserve gets closer to tapering stimulus “should amplify the effect of the BOJ’s policy on the yen."
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USD/CAD
The Canadian dollar rose to its highest level in three weeks after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy still isn’t strong enough to cope without monetary stimulus. Strengthened for a fourth day after minutes of the Fed’s June meeting released on Thursday showed many officials wanted to see signs employment is improving before backing a reduction to bond purchases. Canada’s dollar also advanced versus the majority of its most-traded peers, including the currencies of its commodity-exporting counterparts, Australia and New Zealand. A government report indicated that home prices rose in May.
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