The EUR/USD exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the euro and the U.S. dollar. When the euro appreciates relative to the U.S. dollar, the EUR/USD exchange rate (and the value of the Securities) increases; when the euro depreciates relative to the U.S. dollar, the EUR/USD exchange rate (and the value of the Securities) decreases. The EUR/USD exchange rate is expressed as a rate that reflects the number of U.S. dollars that can be exchanged for one euro in the interbank market for settlement in two days. Effective December 18, 2008 the EUR/USD exchange rate will be the rate reported each day on Bloomberg screen EURUSD WMCO Curncy <GO> at approximately 4:00 p.m., London time, or any successor page.
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Beginning in 2015, the European Central Bank will begin holding policy meetings every six weeks (similar to the FOMC) instead of every four, says Mario Draghi at this month's post-policy meeting press conference.
The European Central Bank's monetary easing earlier this month has spelled trouble for the euro, and analysts say a sentiment shift has attributed further weakness. After hitting a 2-1/2 year high hit in early June, the euro has declined over 3%, due in part to the ECB's negative interest rates, and cut to its main lending rate.
Carry trades, which borrow money in a currency that is backed by a low interest rate to fund investments in higher-yielding assets, have also increased using the euro.
Both the ECB's monetary easing and carry trades have been main factors in causing a declining euro. Data released last week shows the net short position for the euro/dollar reaching its highest level since late May 2013.
Seemingly setting the stage for QE, Mario Draghi - beginning his post-ECB policy meeting press conference - says the central bank wii stop sterilizing its previous bond purchases made under the Securities Market Program (SMP).
"The governing council is committed to using unconventional measures if there is too long a period of too low inflation." Among the moves are targeted LTROs and purchases of asset-backed securities.
The Stoxx 50 (FEZ) is ahead 1.5% now, and the euro -0.7%.
Euro zone flash inflation data for May is due today, with the consensus being a 0.7% rise year-on-year. The numbers are expected to detail decreasing price pressures in the region and reinforce the case for a heavy monetary stimulus from the European Central Bank.
Barclays, RBS and JPMorgan predict an annual inflation reading of 0.5%, which is far below the European Central Bank's target of near or just below 2%. A softer reading will also boost the chances of the ECB loosening it's policy towards negative deposit rates when it meets on Thursday.
Germany's Bundesbank is willing to support significant ECB stimulus if the latter's inflation forecasts for the period through 2016 are lowered, the WSJ reports.
Measures could include a negative rate on bank deposits and purchases of packaged bank loans as the Bundesbank lends its weight to the battle to stop low inflation becoming permanent and even becoming deflation. However, the bank is still resistant to large-scale purchases of public and private debt.
Still, the Bundesbank's readiness to counter stimulus marks a departure from its traditionally strong opposition to such action.
The euro slides from its highest level in two years after ECB President Draghi - speaking at the post-policy meeting press conference - says board members are comfortable taking additional policy action in June if necessary.
Nearly touching $1.40 to the dollar following the ECB standing pat at this month's meeting earlier today, the euro has tumbled back to $1.3890.
Germany's growth premium in comparison to Europe is shrinking, impacting 25% of Germany’s equity market revenues, says global equity strategist Andrew Garthwaite, moving to a benchmark weighting in German stocks from overweight.
He also notes the country's competitiveness and funding-cost advantages are on decline, and it has three times more export exposure to China than Europe as a whole.
France, on the other hand, is moved to overweight as a play on ECB launching QE. "Bond spreads are consistent with outperformance, and France stands to benefit more than Germany from any ECB easing," says Garthwaite.
P/E valuations are 5% below average, and 75% of the companies in CAC 40 have restructuring potential, he says.
Eurozone manufacturing PMI increased to 53.4 (flash 53.3) in April from 53 in March.
All the nations covered indicated factory sector growth, which, says Markit "highlights how the recovery is becoming more broad-based."
German growth accelerated, while Irish PMI hit a 38-month high and that of Italy a 36-month high, with exports out of Spain and Italy growing strongly. In contrast, France's export performance was mediocre.
Eurozone flash manufacturing PMI has increased to 53.3 in April from 53 in March and topped consensus that was also 53.
Services has risen to a 34-month high of 53.1 from 52.2 and vs 52.4.
Composite output has climbed to a 35-month high of 54 from 53.1 and vs 53.1.
Manufacturing output has increased to 56.5 from 55.6.
The growth was led by Germany, while France stabilized.
The data indicates that eurozone GDP is on course to rise 0.5% in Q2 following 0.4% growth in Q1.
The bloc experienced a return to job creation, says Markit, suggesting that companies believe "that the recovery has legs and is looking increasingly sustainable." However, Markit warns of "growing fears that deflationary pressures are intensifying."
The euro rises further, having gained a boost from German PMI, and is +0.25% at $1.3839. (PR)
The odds of unsterilized large-scale asset purchases - i.e., LSAPs, i.e., QE - from the ECB have pushed past 50:50 says Citi;s Guillaume Menuet, and the program could begin as early as September.
How? Citi's team expects the ECB to buy both public and private-asset classes, with a majority likely to be things like sovereign bonds. As for size, Citi sees a bare minimum being €1T. This compares to the BoE's £375B program and the Fed's current pace (amid the taper) of $55B per month.
Don't look for action before September, though, says Menuet, as the ECB will likely wait and see if easing at the June meeting begins to do the trick of bringing inflation back up towards its 2% target. Will it work? "While it will likely be on a scale large enough to excite financial markets, we are doubtful it will be on a scale large enough to transform the economic outlook from an extended period of low inflation and low interest rates.”