Two weeks ago, the Euro had rallied strongly against the US dollar in the currency markets on the expectation that the ECB would embark on a series of interest rate increases, but all that changed last Thursday on July 3rd. That day, the ECB raised the main refinancing rate by a quarter-percentage point to 4.25%, a move widely expected by the market.
But when Trichet said during the press conference that he has “no bias” toward more rate hikes in the future, the Euro came tumbling down - really hard - against the US dollar. He maintained that the ECB will keep an eye on second round inflation effects, but smartly chose to publicly shift to a neutral stance for the sake of balancing economic and inflation risks in the Eurozone.
The implied rate on the December Euribor futures contract fell to 5.15% Friday, from 5.28% the day before the ECB rate announcement. EUR/USD ended the week down, with the US dollar up against other major currencies including the Swiss franc and the British pound.
This week we might see consolidative moves among the currency majors or a recovery of the greenback as the currency market takes its cues from the battered US stock markets and oil prices.
There won’t be much on the economic calendar, but watch out for US existing-home sales on Tuesday, US retail sales on Thursday and US consumer sentiment on Friday.
Economic Calendar For Monday:
Swiss unemployment 0545 GMT
UK industrial production 0830 GMT
German industrial production 1000 GMT
Fed’s Yellen speaks on US economic outlook 1500 GMT
UK NIESR GDP estimate 2301 GMT