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Draghi disappoints Euro bulls

By Hamish Muress

It looks like Janet Yellen should start looking for a new role as it was reported yesterday that she is out of the running for the Fed Chair next year. The papers reported yesterday that the race has been narrowed to just Powell and Taylor according to a White House insider. However, Yellen may not want to update her CV just yet as it is clear to everyone that President Trump ‘changes his mind everyday’. Besides this, US jobless claims rose yesterday according to the latest release from the Labor Department. Whilst there was an increase in claims it was only small, around 10,000, and the state of the jobs market in the US is reflected in the fact that jobless benefits are still around 40 year lows. The USD had a turbulent day beyond this but this was driven by events in Frankfurt as EUR/USD broke through 1.1750 (IB).

In the UK, CBI’s latest outlook on retail sales painted a pretty poor picture as it found that sales were up for only 15% of shops. This is due to consumers tightening their belts due to poor wage growth and the weak pound. There isn’t any data for today so the focus will swing back to the Bank of England’s interest rate meeting next week. Will they or won’t they raise rates?

By far the biggest story yesterday was from the ECB. It was known beforehand that the European Central Bank would extend its quantitative easing programme whilst reducing the amount it is purchasing. As a result Mario Draghi cut the volumes from €60bn a month down to €30bn whilst extending the asset purchasing programme to September 2018. This very conservative approach to monetary policy is typical of Draghi and was emphasised by the fact that he stated that the QE programme could be extended beyond 2018 if necessary. Furthermore interest rates will remain at the current record low levels well beyond the end of the QE programme and whilst this was as analysts had expected there was still some disappointment in the market by this dovishness and the euro sold off. 

Overnight we saw the release of Australia’s latest PPI figures for Q3. Price increases for businesses slowed to 0.2%, down from 0.5% in July and this matches the disappointing consumer price inflation earlier in the week. The Reserve Bank of Australia meet in a fortnight and rates will be on hold for a while.

Yesterday it would appear that the New Zealand finally stemmed its losses around GBP/NZD 1.93. It has been a torrid week for the Kiwi as it has lost over 2% against most of its peers. Next Tuesday sees the release of the country’s employment figures which will probably be the earliest opportunity for the currency to regain some lost ground.