EUR/USD
With the threat of deflation still stalking euro-area economies that are barely out of recession, the European Central Bank president all but committed himself to providing further stimulus at June’s monetary policy meeting. After keeping rates at record lows yesterday, Draghi told reporters that the 24-member Governing Council is “comfortable with acting next time.” He underscored that position with comments showing a heightened concern that a rising euro will depress prices and derail the recovery. Draghi’s remarks sent the euro and money-market rates plunging as investors bet the ECB will deliver on its long-standing pledge to act if needed. The comments were reminiscent of his predecessor, Jean-Claude Trichet, who typically signaled rate increases, though not reductions, a month in advance using the phrase “strong vigilance.” The euro weakened from a 2 1/2-year high against the dollar after European Central Bank President Mario Draghi said policy makers were ready to ease monetary policy in June if needed. The euro dropped 0.5% to $1.3840 after appreciating to $1.3993, the strongest level since Oct. 31, 2011.
GBP/USD
The pound strengthened to an 11-week high against the euro as European Central Bank President Mario Draghi said the Governing Council was ready to increase stimulus next month if needed, damping demand for the common currency. Sterling rose to within 0.1% of 1.7000, a level last reached in August 2009, as data yesterday showed Britain’s house prices increased in April. Bank of England and ECB policy makers left interest rates unchanged today. Money market rates show the Britain’s central bank will increase borrowing costs by April. U.K. government bonds were little changed. Today Sterling was little changed at $1.6929 after rising to $1.6935. It climbed to $1.6996 on May 6, the most since August 2009. The Bank of England kept its Official Bank Rate (UKBRBASE) at 0.5%. The ECB held its main refinancing rate at an all-time low 0.25%.
USD/JPY
Earlier in the week, the Bank of Japan released minutes of its last policy meeting. Bank policymakers expressed concern that the economic recovery is exerting some upward pressure on prices, but the rise might not be enough to hit the BOJ's inflation target of 2%. The economy seems to have weathered the April sales hike nicely, and Household Spending posted a sharp gain in April, pointing to strong consumer spending. With inflation indicators continuing to point higher, the government will be directing more attention to the nation's staggering debt load, which is in excess of $10 trillion dollars. On the other hand, Federal Reserve Chair testified before Congress' Economic Joint Committee on Wednesday, and gave a cautious thumbs-up to the economic recovery. She said that the economy has improved, but pointed to two sore spots - the job market remains weak and inflation is below the Fed's target of 2%. Yellen stated that she therefore expects that low interest rate levels will continue for a "considerable time". Yellen has stated previously that slack remains in the economy, and the Fed is expected to proceed carefully with future trims to its QE scheme. Since December, the Fed has trimmed the asset-purchase program by almost half, cutting it to $45 billion each month. Today, the samurai currency was traded at 101.76 during the Asian session, rising from 101.55 as morning’s low.
USD/CAD
The Canadian dollar has posted gains on Thursday; the loonie has had a strong week, climbing about 130 points against its US counterpart. In economic news, Canadian Housing Starts jumped to a six-month high in April. In the US, Unemployment Claims rebounded nicely, dropping to a three-week low. In Washington, Federal Reserve chair Janet Yellen testifies before the Senate Budget Committee. Canadian releases finally pointed upwards on Thursday, as Housing Starts jumped to 195 thousand, up from 157 thousand a month earlier. This easily beat the estimate of 177 thousand. Earlier in the week, Building Permits posted a 3.5% decline, well off the estimate of a gain of 3.9%. On Tuesday, Trade Balance slid to $0.1 billion, missing the estimate of $0.4 billion. Ivey PMI also disappointed, dropping to 54.1 points, a four-month low. The estimate stood at 54.5 points.
