The euro rallied despite weak German PPI data and a shrinking Eurozone current account surplus. Market participants chose to react positively to the solid ECB bank lending data which suggested an improvement in financial conditions in the Eurozone and that the Bank’s QE program is working its way into the economy. This would lessen expectations of any action to be taken at the ECB’s meeting on Thursday for more QE and this was supportive for the single currency.
The euro rose from a session low of 1.1323 to a high of 1.1386 before easing lower to the middle of today’s range due to a strengthening dollar on the back of upbeat US housing starts data.
Sterling briefly tested the key 1.5500 level versus the dollar but mostly consolidated in a tight range around 1.5475. There was little response to hawkish comments from Bank of England MPC member Ian McCafferty. He reiterated his stance for an interest rate rise sooner rather than later. He has voted to increase the key rate for the past three months.
The Canadian dollar managed to recover after early post-election losses. The loonie had weakened following Monday’s Federal election in Canada that delivered a Liberal majority government. The USD/CAD pair fell from a high of 1.3046 to 1.2954.
The greenback rose against the yen to 119.80 following the release of upbeat US housing starts data, which come a day after an equally positive NAHB homebuilder sentiment index. Housing starts in the US beat market forecasts to rise 6.5% to a seasonally adjusted annual rate of 1,206,000 in September. This followed an upwardly revised 1,132,000 starts in August.
Markets shrugged off disappointing building permits data for privately-owned housing units which were down 5% at a seasonally adjusted annual rate of 1,103,000 in September from the August rate of 1,161,000.
US economic data are watched closely as investors continue to assess their expectations of a Fed rate hike.
Meanwhile, Fed Chair Janet Yellen and the New York Fed’s William Dudley are due to speak later today, although both are delivering welcoming remarks and are not expected to touch upon policy.
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