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EUR/USD Struggles To Fresh Lows

EUR/USD Struggles To Fresh Lows

ECB comments keep pressure on EUR

As the world continues to focus on Paris, Belgium and the Western response to Friday’s terrorist attack, the impact on financial markets is already starting to fall away somewhat. That being said, the euro is very much on the back foot as we open up this Tuesday morning.

ECB Board Member Peter Praet has been quite outspoken in recent months on the European Central Bank’s requirement for additional easing; in September, as EUR/USD ran to 1.15, he told reporters that additional asset purchases may be needed, and when asked about policy at the October interest rate decision, he stated that there were “no taboos” for the European Central Bank.

This morning, in an interview with Bloomberg he said that “there are risks and this is why we’re considering further action. A possible de-anchoring of inflation expectations together with a lot of slack is a dangerous cocktail.” He also commented on how downside risks to the European economy have increased.

EUR/USD is below 1.07 this morning as a result, with GBP/EUR healthily above 1.42 and looking for more.

Inflation still the leader

Both the UK and US are due inflation readings today and although we still ascribe more weight to inflation dynamics than growth for the purposes of forecasting how both the Federal Reserve and the Bank of England are likely to move policy in the future, today’s readings leave us a bit cold.

In the UK’s case, the inflation outlook is weak but expected to run higher through base effects of last year’s oil price fall soon to be no longer part of the inflation calculations. The Quarterly Inflation Report a fortnight ago raised fears that the bounce back through 2016 may not be as steep as some would want and therefore the pace of tightening in the UK may be too fast.

Wages are not doing too much heavy lifting at the moment and therefore pressures on CPI remain weak – there is the possibility that sterling could be tripped up by a weak number. In the short term, however, I think that we see GBP remain resilient – consensus for a hike remains in May and as long as noises from the US suggest that lift-off there will take place in December, then sterling should remain supported.

UK inflation is due at 09.30 with the US measure at 13.30.

Greenback pressing onwards into December

Dollar has been aggressive as the Asian session has worn on with market bets of Fed action in December rising close to a 70% probability. We have six members of the Fed speaking in the next 36 hours and the latest set of minutes from the Fed tomorrow night; traders will be looking to take back the greenback even more.

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