Monex: Euro gets a boost from hawkish ECB policymakers

Monex: Euro gets a boost from hawkish ECB policymakers

September 2, 2021

Currency British Pound US-dollar EUR
ECB (07)

The euro gets a boost from hawkish ECB policymakers. Below is a short commentary in English by Ima Sammani, Currency Analyst at Monex Europe on the US dollar, the euro and the British pound.

EUR

The single currency pounced on the broadly softer dollar in yesterday’s trading session, aided by hawkish messages continuing from the Governing Council. Yesterday, Jens Weidmann stated that the ECB shouldn’t disregard the higher inflation prints when speaking at a Bundesbank symposium.

By stating that upside risks “predominate”, Weidmann has added to the recent chorus that are calling for the ECB to take its foot off the gas with regards to stimulus ahead of next week’s meeting. The commentary by policymakers has led to bond yields rising across the continent over the first half of the week, which has acted as a tailwind to the single currency as it continues to climb back to Q3 highs.

With no ECB members set to speak until the central bank meeting next week, the market emphasis will be on incoming data. To which, today’s eurozone producer price index data for July may be of interest, especially among the debate of how sustainable the current inflationary overshoot will prove. Released at 10:00 BST, the data is expected to show a rise from 1.4% to 1.8%.

USD

The dollar continued its decline in yesterday’s session, sustaining losses against most G10 pairs as a string of US data surprised to the downside. Most notably, the ISM prices paid index fell from 85.7 to 79.4 in August, helping soothe fears that the current high level of inflation is more sticky than policymakers are suggesting.

On top of that, the ADP private employment data printed almost 50% below expectations, with the reading coming in at 374k vs expectations of 625k. The data comes ahead of Friday’s Nonfarm Payrolls data, which will prove instrumental for the Fed’s September meeting and where policymakers place their interest rate projections.

Ahead of the NFP data, the dollar has stabilised somewhat, but initial jobless claims data at 14:30 CET and pre-NFP positioning may cause the greenback to shift from its currently tight ranges.

GBP

An improvement in market risk sentiment propped the pound up during yesterday’s session as most of the G10 rallied against the greenback. The pound’s focus was largely on broader market developments as the release of August’s final manufacturing PMI data along with other second-tier data releases did little to move the currency.

While much was made of the new appointment by the Bank of England, that too had little immediate market impact as the former Goldman Sachs and ECB member, Huw Pill, was still an unknown quantity in regards to UK monetary policy.

Today, the data calendar is completely empty for the pound as it trades ever so slightly higher against the US dollar and flat against the euro.

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