The euro weakened against its major peers today after ECB President Mario Draghi made dovish comments and a report showed that German producer prices fell a greater-than-expected amount last month.
By Peter Martin
Friday, November 20, 2015
Mr Draghi spoke earlier today at the Frankfurt European Banking Congress and said that growth momentum remains weak, while inflation lies well below target, despite existing stimulus measures having clearly worked in spurring a recovery. Consequently, the ECB’s governing council will be assessing which factors are slowing inflation at its December meeting. ‘If we conclude that the balance of risks to our medium-term price stability objective is skewed to the downside, we will act by using all the instruments available within our mandate,’ said Mr Draghi. ‘If we decide that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible. That is what our price stability mandate requires of us.’ This seems to suggest there is a good chance of more QE being announced next month and Mr Draghi’s comments served to depress the euro in early trading on Friday. EUR/USD slid 0.27% to 1.0704, having traded down as low as 1.0664 earlier in the session, while EUR/JPY fell 0.34% to 131.44.
The German Producer Price Index (PPI) also dragged on the euro, showing a 0.4% fall for October, versus expectations for a 0.2% decline. This was the second consecutive 0.4% decline and with producer prices having now fallen four times since May, there looks to be a consistent downtrend. Year-over-year the German PPI is down 2.3%, compared to the 2.1% deflation rate in September.
USD/CAD was little changed following Canadian retail sales that surprised to the downside and Canadian CPI that surprised to the upside. Retail sales for Canada were down 0.5% in September, following four successive months of gains, with lower gasoline prices one of the leading causes behind the decline. On a volume basis, sales were up 0.1% though, illustrating the effects of lower prices. There was a slight pickup in Canadian consumer prices last month though: the CPI rose 0.1% after a 0.2% decline in September, and the annual change was +1.0%. The Bank of Canada’s core inflation measure, which excludes the most volatile components from the CPI, was up 2.1% year-over-year, the same annual change as September, remaining just above the central bank’s 2% target. USD/CAD had been up above 1.3300 earlier in the trading session, but slipped down to 1.3277, down just 0.05% on the day, following the CPI data.
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