A surprise rate cut by the People’s Bank of China and an intimation of broader stimulus measures from the European Central Bank, have helped to boost risk appetite in general, while the euro weakened.
By Peter Martin
Saturday, November 22, 2014
The Chinese central bank announced it was cutting its benchmark rates, dropping its one-year lending rate by 40 basis points to 5.60% and its deposit rate by 25 basis points to 2.75%.
Minutes released this week from the Fed’s most recent FOMC meeting reveal that concerns over too-low inflation are not solely the preserve of the ECB; October’s consumer price data shows that US inflation remains below target, though it does look steady and well above inflation levels for the eurozone.
Inflation is a small worry for the Fed, not low enough to seriously alter the outlook for US monetary policy, but in Europe it is a major headache. The euro plunged against most major currencies today, as ECB President Mario Draghi gave his strongest indications yet that the central bank is ready to take bold steps to combat low inflation, which has been an ongoing thorn in the side of the eurozone economy.
Speaking at the European Banking Congress in Frankfurt, Mr Draghi said that the ECB ‘will do what we must to raise inflation and inflation expectations as fast as possible.’ Amidst speculation that this is a thinly-veiled hint that the ECB will announce further stimulus at its December policy meeting, EUR/USD fell 1.23% to 1.2385. The euro also plummeted more than 1.5% against the Japanese yen.
The Canadian dollar has strengthened sharply after inflation data for October came in higher than expected. The Canadian Consumer Price Index (CPI) rose 0.1% last month, confounding analyst expectations which had pointed to a 0.2% decline. That takes the annual change in inflation up to 2.4% from the 2.0% seen in September. Warming was also evident in the core measure excluding the more volatile components of food and energy, which increased 0.4% month-on-month. Allied with other upbeat economic gauges seen recently for Canada, this latest report seems to point to growing momentum for the final quarter of the year, and should inflation continue on this upward trajectory, the Bank of Canada may be forced to abandon its current dovish stance. USD/CAD fell 0.51% to 112.44 by mid-afternoon in New York, having touched as low as 1.1192 earlier in the session, the strongest the Loonie has been against the US dollar so far this month.
This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.