The US dollar was strong following hawkish comments by Fed Chair Janet Yellen that she was actually “looking forward” to a rate hike that would signal that the US economy is on the path of monetary policy normalization. Yellen tried to stress the positive side of a possible rate hike, which showed that she was probably prepping the market for such a decision when the Fed next meets on December 15/16. She also warned that delaying a rate hike could have negative implications.
The dollar kept the euro under 1.06 at 1.0580, the pound continued to trade below 1.50 versus the greenback at 1.4930, while the yen was also weak just under 123.50. Interestingly, the yen was also unable to keep the euro below the 130 level, as the pair was trading at 130.70.
A Japanese government official talked about the need for further stimulus from the Bank of Japan. Also weighing on the yen was a drop in the country’s Services’ PMI while it remained in expansionary territory above 50. In China, a drop was also reported in the Services’ PMI for November, while remaining in expansionary mode.
The Australian dollar found itself initially under pressure following the release of a bigger-than-anticipated trade deficit for October. It dipped below 0.73 versus the US dollar but managed to rebound to 0.7325.
Looking ahead, the highlight of the day will be the ECB meeting and press conference later during the European session. A cut in the euro’s deposit rate as well as the enhancement of the Quantitative Easing program are widely anticipated, but the exact details of the changes should lead to volatility in the euro. There will be some resistance to more stimulus by certain members of the board, but at the end of the day the market expects the ECB to deliver substantial stimulus measures. The previous day’s weaker-than-expected Eurozone inflation numbers have strengthened the hand of those board members calling for additional stimulus.
Other notable events in today’s calendar include the UK Services’ PMI, the weekly jobless claims from the United States as well as the testimony of Fed Chair Janet Yellen before a congressional committee.
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