Euro remain steady despite hints of more QE – 23rd November 2015

Despite the US Dollar’s meagre 1.5% rise, it still managed to be the leading major currency over the last week and it did reasonably well on Friday too, strengthening by more than a cent against Sterling. It wasn’t enough for first place though, as the South African Rand pipped it to the post on Friday.

There was no obvious connection between the two currencies, nor was there any compelling reason for the divergence of the Australian and New Zealand Dollars as the Kiwi was the day’s weakest performer with a three-quarter-cent loss. The only ecostats of any note were for UK public sector borrowing, which was unremarkable, and Canadian inflation, which was steady at 1%.

With a bit of imagination it is possible to link some of Friday’s moves to a speech by Mario Draghi, the president of the European Central Bank, when that the governing council “will do what we must” to lift inflation back to its 2% target. His message was yet another warning that the next policy meeting on 3rd December is likely to result in the announcement of fresh stimulus measures from the bank. Exactly what those measures might look like is still up for grabs, but he hinted that they could include rate cuts and an extension to the asset purchase programme.

The prospect of more quantitative easing from the ECB was positive for the US Dollar, for the simple reason that Federal Reserve policy is heading in the opposite direction. It was also helpful to the commodity-oriented currencies, in that it should help build appetite for their countries’ exports. It cannot, however, explain why the safe-haven Japanese Yen and the allegedly “risky” Australian Dollar both went up. It doesn’t account either for the resilience of the Euro, which lost just a third of a cent to Sterling.

The first phase of the monthly purchasing managers’ index deluge begins today, with provisional readings from Euroland and the US and there is little else. It means investors will struggle to find inspiration among data like that and could mean another day of aimlessness unless the PMIs – or the Euro group meeting in Brussels – throw out something unexpected.