Euro extends gains after ECB disappoints; Oil prices hold at 2-week high
The ECB’s less dovish tone yesterday continued to weigh on risk appetite in financial markets on Friday, while reports that North Korea had carried out another nuclear test also hit sentiment in Asian trading today. The euro jumped to a two-week high of 1.1326 dollars after yesterday’s decision by the European Central Bank to keep monetary policy unchanged. But it later pulled back before reversing upwards again to climb to 1.1284 dollars in Friday’s Asian session. Today’s gains were capped by worse-than-expected trade data out of Germany. German exports unexpectedly shrank by 2.6% month-on-month in July, while the previous month’s figure was revised down. The weak export numbers add to concerns that growth in Europe’s largest economy is slowing down, which could yet prompt the ECB for more action later in the year. The dollar meanwhile was driven higher yesterday from a jump in crude oil prices as the rebound in the commodity raised expectations that inflation in the US could start accelerating sooner than anticipated, leading to higher interest rates. The dollar peaked at 102.59 yen after the release of Thursday’s crude oil inventory data, but had eased to around 102.15 yen in late Asian trading today. Crude oil prices held on to most of yesterday’s gains when they jumped to two-week highs on the back of a much bigger-than-expected drawdown in US crude stocks according to data from the US Energy Department. WTI oil was trading just above $47 a barrel, while Brent crude was around $49.50 in late Asian session. In China, consumer prices rose by less-than-expected in August, rising by 1.3% year-on-year instead of the 1.7% rate that was forecast. But the decline in the headline rate was not seen as too worrisome as producer prices continued to strengthen. China’s producer price index fell at the slowest annual pace since 2012 and was down by just 0.8% in August. The yuan weakened against the dollar in Asian trading on Friday as the People’s Bank of China set a weaker midpoint. The Chinese currency stood at 6.6789 per dollar in onshore trading, but the weakness was led by speculation that the PBOC would let the yuan depreciate further rather than by expectations of a rate cut due to falling inflation. The pound continued to face downwards pressure on Friday as dovish remarks by the Bank of England on Wednesday and a more cautious ECB caused sterling to erase its gains from earlier in the week. The pound was struggling to hold on to the 1.33 level against the dollar, while the euro was attempting to break above the 0.85 pound level. Coming up later in the day, UK construction and trade figures will be eyed in the European session, while Canadian employment data and the latest US oil rig count will come into focus in the US session before speeches by the Fed’s Rosengren and Kaplan are watched later in the day.