FX round-up: ECB minutes reveal concern over euro strength, cable lower on the day
The latest round of ECB (European Central Bank) minutes out on Thursday revealed some concerns around recent euro strength, sending the single currency to its month-to-date lows versus the US dollar.
The release of the minutes helped push euro 0.33% lower against the dollar to 1.1771 on the day. Most noteworthy for traders were comments where the minutes stated, "concerns were expressed about the risk of the exchange rate overshooting in the future," and attributed the euro's strength in recent weeks to political uncertainty in the UK and dampened interest rate hike expectations in the US.
In a note out later in the day, Barclays said of the ECB minutes, "Overall, we believe that the minutes remain consistent with our baseline view on monetary policy," adding "We expect an extension of QE into 2018 but also a reduction of its monthly pace to €35-40bn in H1 18 (which we expect to be announced in September/October) and further reduced to €15-20bn in H2 18."
Against sterling, the single currency lost ground, trading 0.27% lower to 0.9107 by 1900 BST after hitting a low for the session of 0.9064 at midday. EUR/GBP has been on a rally since April and currently trades at near 10-month highs with some analysts looking for the pair to hit parity this year, should the euro's appreciation persist.
Positive retail sales were not enough to bolster the pound against the dollar on Thursday. With a print of 0.3%, beating expectaions of 0.2%, it looks like the downwardly-revised figure from 0.6% in June was enough to keep the pair in check. That saw GBP/USD trade 0.25% lower to 1.2873, with the greenback getting some help from a positive read on weekly US unemployment claims which came in at 232,000, as well as a better than expected Philly Fed manufacturing print of 18.9.
"For the second day running the pound has received a positive boost from an economic release, however just like on Wednesday it has failed to sustain a rally," said David Cheetham, an analyst with broker XTB in London, pointing to a downward revision of June's numbers as another negative.
"Once traders digested the revision lower the move was pared and the pound remains close to its one-month low against the dollar, despite dollar weakness [...] and not far from its lowest level since last October against the euro."
Figures out on Thursday showed an expectation beating employment change print Down Under, with a figure of 27,900 along with a steady unemployment rate of 5.6%.
This helped the aussie, to some extent, stem the flow of recent weakness against the Greenback with the pair trading 0.5% lower on the day to 0.7905.
George Tharenou at UBS said, "Indeed, faster jobs (growth) in recent years failed to translate to wages [...] we still don't see enough evidence yet for the RBA to change their policy stance," adding that employment would need to "stay solid and lift wages to avoid slower consumption amid a looming housing correction and consumer gloom."
The Reserve Bank of Australia (RBA) has held rates at a record low 1.50% since August 2016 while its New Zealand counterpart has stayed steady at 1.75% after slashing rates three times last year.
"While further short-term upside in the A$ is possible, our view remains that the downtrend...will ultimately resume," said Shane Oliver, Sydney-based chief economist at AMP.