Bollettino Informativo - 13th September 2019
The pound was certainly not in the spotlight and had a wild ride against the euro, whilst being steady against the dollar. News that the DUP is now willing to compromise on some of its red lines, may well help to bring some positive sentiment to the Brexit situation and possibly the pound.
The ECB announced a host of changes to their monetary policy, with the aim of stimulating the eurozone economy yesterday. This included reducing the deposit facility interest rate to -0.5% from its previous -0.4% level. They also restarted quantitative easing to the tune of euro 20 billion per month from November 1st. They also introduced an interest rate tiering system so that banks are not penalised as much by negative interest rates. Finally, the ECB changed their forward guidance from stating dates to when their easing policy would continue to, saying that the policies would continue “as long as necessary”.
The ECB lowered its inflation forecasts to 1.2% for 2019, 1.6% in 2020 and 1.5% in 2021. The GDP forecast for 2019 was also downgraded to 1.1% from 1.2% and for 2020 was lowered to 1.2% from 1.4%. The euro initially weakened on this news before gaining back much of its lost ground. Draghi left some space for his successor Lagarde to ease again, but he did stress that there was unanimity amongst ECB Board members that fiscal policy should now become the main instrument. He said that “it is high time for fiscal policy to take charge.”
Whilst the morning was spent with warm words passing between the US and China, US Treasury Secretary Mnuchin reminded the markets that President Trump is prepared to keep tariffs in place and raise them if necessary. This gave the dollar some support against the commodity currencies. Elsewhere, the dollar was also strengthening on the back of the additional easing from the ECB and again, the President was unhappy as he tweeted that the ECB was, “depreciating the euro against the very strong dollar, hurting US exports.”
Later in the day, it was announced that as a goodwill gesture, the US would postpone the latest planned set of tariffs on Chinese goods for two weeks. It is also now being reported that the US could offer China an interim trade deal. By the end of trading, the dollar had reversed course and weakened as the market now looks to the Fed interest rate meeting next Wednesday, and an expected 0.25% cut. US retail sales are due for release today and we expect an increase of 0.2%.
Good news in the US China trade talks means positive sentiment for the commodity currencies. The AUD managed to stay supported on this news, although how long this can last for is open to debate.