The euro came under pressure after ECB President Mario Draghi reaffirmed today the central bank’s bias to easing in December. Speaking in Frankfurt at the Euro Finance Week Conference, Draghi said the ECB will “do what it must” to lift inflation as quick as possible.
Draghi signaled that the ECB could use many tools at once, which include amending its current asset purchase program (QE) with regards to its pace, duration, composition, as well as cutting interest rates. Thus, the ECB could use one or two or all of these tools by expanding QE (increasing the pace of the purchases from the current 60 billion euros), by extending QE (to beyond September 2016) or changing the composition of QE to include more agencies and possibly sub-sovereign instruments, and finally to cut the deposit rate further.
The market took Draghi’s comments as a signal that the ECB will take aggressive action when it meets on December 3. The euro was sold off in reaction to the comments and fell back below the key 1.07 dollar level to 1.0663.
Sterling was steady against the dollar early in Europe until it fell below 1.5300 to 1.5233.
The dollar consolidated versus the yen just above 122.70, maintaining losses made yesterday after a post-Bank of Japan rally in the yen. The dollar will be in focus next week due to a raft of US data out on GDP, durable goods orders and PMI data.
During the North American session today there were no key US data points but Canadian data were important.
Canada’s headline annual CPI rate held steady in October at 1% in line with economists’ expectations that inflation would match September’s reading. The core annual CPI rate stayed at 2.1%. Meanwhile Canadian retails sales unexpectedly fell 0.5% month-on-month in September, which was against a forecast for a 0.2% rise. In September there was a 0.5% gain in retail sales.
The Canadian dollar fell against the US dollar after the data but then rebbounded. The exchange rate for the greenback versus the loonie was last at 1.3280 from the post-data high of 1.3335.
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