Major currencies strengthen on hawkish comments during central bank conference in Portugal yesterday

Major currencies strengthen on hawkish comments during central bank conference in Portugal yesterday

Posted on Thursday, June 29 2017 at 3:36 pm GMT+0000

Euro hitting a one-year high

The euro continued its surge today hitting a one-year high, amid the hawkish-perceived comments By Mario Draghi, which indicated the central bank’s intention to begin gradually easing the monetary stimulus program.

Earlier this month, Draghi said that deflation risk is being deferred and that the European economy is improving significantly, especially in terms of growth, which in turn drives the inflation rate higher.

Draghi confirmed that sustained market circumstances will push the central bank reduce the QE program in order to achieve balance provided that good data continue.

But we should not forget that, despite the current optimism, Europe is still suffering from some crises such as the Italian banks crisis and the Greek crisis so investors should remain cautious, but generally in the long term Euro might target the 1.1580 after breaking the 1.1450 barrier. Currently, it is important to keep in mind that the market has reached a strong resistance area that could push the currency to initiate a near-term retracement.


Dollar fell sharply

The dollar experienced a sharp drop, posting a fresh eight-month low, against various major currencies following the comments of monetary policy makers that raised the possibility of reducing monetary stimulus programs and probable interest rate hikes, which reduces the difference between US and other major countries’ monetary policy.

After more than a year and a half of talking about US interest rate hike while most of other countries reducing their one rates, other economies are beginning to see growth and inflation improvements, prompting central banks to tighten their policies.

With the dollar reaching overbought levels and some sort of stability in the recent period, a period in which currencies over-perform the US currency might begin, if market circumstances remain unchanged, especially in Europe and the UK.


Pound continues its surge

Carney’s comments yesterday supported the pound resulting that raised by more than 200 pips where the currency reached its highest level since June 3rd.

What is striking is that, despite the talk about the possibility of an interest rates hike and a reduction of the QE program in the coming months, Carney maintained a dovish take regarding the future steps of the UK’s monitory policy.

He figured out that the rise in inflationary pressures has resulted from the sterling’s. Therefore he prefers to see improved domestic inflationary pressures and consumer spending before making any monetary policy tightening decisions.

Adjustment of monetary policy will depend on the rate of growth and wage levels while Brexit issues are not considered as an important, since the BOE will allow inflation to exceed the target of 2%.


Optimism touching Asian markets

Asian markets rose during today’s trading session, affected by the sustained upward trend in global markets led by the US markets, of course.

Despite the dollar’s decline, investors’ risk appetite increased, especially after positive comments from central bank governors considering   improved growth.

This rise was also supported by the banking and technology sector.

In Japan, despite the drop in Treasury sales for the month of May, Nikkei index gained 0.45%.

This optimism boosted the demand for major currencies as well, pushing the Australian to hit a three-month high, the Australian currency is expected to continue moving higher and target 0.770.