The European Central Bank policy makers said in a meeting last week that the Euro is presently strengthening its deflationary factor and low inflation is potentially to continue in the eurozone for some time in the coming months. The EUR/USD is also presently sitting around $1.38, the euro’s strength forces import prices at a much lower rate which negatively affected the overall inflation.
In the course of the last 12-months, the Eurozone inflation fell to only 0.5 % in March which was far below the ECB’s target close of 2 %. This could relatively compel the ECB chairman in announcing one his most drastic and controversial decisions of an interest rate cut to either 0 % or the radical minus number in addition to the increase in stimulus through quantitative easing.
The markets were very keen in heading into the weekend due to the vague geopolitical developments in the Ukraine. The absence of new substantial developments over the previous week and during the trade prior resulted Emerging-market currencies rising in more than a given week.
The lacking escalation in the Ukraine resulted in driving investors’ demand for higher yielding and riskier assets. The Ruble gained for the very first time happened in the past seven days against the USD and EUR albeit the U.S. sanctioning seven influential Russians along with 17 major companies including those heavily involved in the energy, financial and infrastructure sectors.
On the other hand, Scandinavia was not affected by the present movement in the market with Sweden’s Riksbank announcing that they will be requiring further monetary policy should prices continue to decline more than policy makers predicted.
The First Deputy Governor cautioned that at such low levels its vital that rough estimates be made. There were reported data which was substantially much lower than previous forecast hence the tolerance for even the lower inflation data is pretty small. There might be even a QE from Sweden or a drop in interest rates which will definitely affect the strength of the SEK.
News from the United Kingdom
Sterling advanced to another four-year high of 1.6858 against the USD as a result of a stronger than expected economic growth, which was assisted by a wave of mergers and acquisitions boosting demand for the British pound.
The U.K. Gilts diminished with economists expecting the U.K. first quarter GDP figures to be released showing expansion at the quickest pace in the past four years which has been nicely complimented by a solid house price rise.
Experts predict that Cable will continue to rally in the lead up to the GDP. There is possibility that if the GDP prints above 1 %, $1.70 is most likely to be hit by mid-week with the USD widely expected to continue underperforming.
GBP/EUR traded relatively at a stable closing at 1.2040, with a clear range between 1.2120 and 1.2160 correspondingly. This range has remained strong over the last five days, but could be seriously tested on the back of U.K. GDP data that is yet due for release. Should the U.K. data fail to break the aforesaid range, there might be further tests at 12.00 with German CPI data due to be release in the coming weeks.
The pound appears to be supported on market expectations of supportive corporate flow, when combined with improving data out of the U.K. which would further bolster sterling sentiment. In addition with the prior statements and market sentiments, the Sterling enjoys the gains as Pfizer is still very much interested in a dead to purchase AstraZeneca. Should this deal were to be completed, it would be regarded as the largest U.K. takeover.
Finally, sterling was able to rally 5.5 % since last year with GBP ranking as the best performer of G10 currencies, significantly outperforming the ever reliable Scandinavian block currencies. EUR was able to gain 1.3 % with the dollar rising 0.8 % as compared with other G10 currencies.