The euro extended yesterday’s slump when it suffered a sharp sell-off after ECB President Mario Draghi hinted at additional monetary stimulus. Speaking at the press conference following its October policy meeting, Draghi said that the degree of monetary policy accommodation will need to be re-examined at the December meeting when new inflation projections will be available.
Markets were also surprised that the Governing Council discussed lowering the deposit rate, which Draghi had previously stated they would not be cut further below current levels. The dovish stance sent the single currency plummeting against its peers. The euro fell below the 1.12 handle against the dollar, having traded around 1.1320 dollars before the press conference started. It fell further in today’s Asian session to 1.1071 – a 2-month low – before recovering slightly to 1.1120 dollars. The single currency also fell sharply against the yen and the pound and was last trading at 134.15 yen and 0.7216 pounds.
Equity markets were lifted by the prospects of further stimulus by the ECB, in addition to strong earnings results in the US. European and US shares closed sharply higher and Asian stocks were also in positive territory on Friday.
The yen firmed slightly after the Nikkei Manufacturing PMI came in above estimates. The Japanese currency had fallen sharply yesterday on a stronger dollar, but also on expectations that the Bank of Japan might follow the European Central Bank in announcing or signalling further monetary stimulus when it meets next week. But today’s improved PMI numbers are likely to be used as evidence by the Bank that the Japanese economy is recovering. The flash manufacturing PMI for October rose to 52.5 from 51.0 previously, above forecasts of a reading of 50.5.
The dollar dropped to 120.62 yen after the data, having earlier hit a high of 120.98 yen.
The greenback was boosted yesterday from positive initial weekly jobless claims, which rose by less than expected. Housing data was also strong, with existing home sales rising by 4.7% in September. The positive data and the tumbling euro sent the dollar index over 1% higher.
The pound was also boosted after UK retail sales surged in September. Sterling jumped to 1.5507 against the dollar on Thursday, but fell to 1.5368 after the strong US data. It attempted to climb back above 1.54 dollars in today’s Asian trading, but was unable to hold on to it and was last trading at 1.5392 dollars.
Coming up later today, Eurozone flash PMI for October will be the main focus in European trading followed by US manufacturing PMI in US session.