EUR strength depends on Trichet speech today
One of the main driving forces in the currency markets at the moment are interest rate rises, who is going to be the first to start the move back to more “normal” rates. The euro has started the week well holding onto gains made following ECB’s hawkish comments last week. With ECB president Jean-Claude Trichet speaking today the markets will be paying close attention to any confirmation that a near term rate hike is on the cards. The ECB seem to be the first central bank to make sounds that they will start hiking rates and the Euro has gained a fair bit of strength on the back of it. All this could be confirmed or denied by Trichet during his speech as it was only a couple of weeks ago that sterling rallied based on rate hike expectations only for a very dovish speech Mervyn King to reverse the view.
There seems to be a massive divide in the central banks at the moment, raise rates to try stem the global inflation effects and risk hurting a weak economy or hold fire and allow the economy to gain strength. This Thursday we also have the UK rate decision and although we don’t expect a change in rates there will be plenty of investors looking for signals of rate rises and sterling could have a choppy day on the back of it.
Friday saw the monthly non-farm payrolls data out for the US come in at a better than expected increase of 192k jobs taking the unemployment rate down to 8.9%. This seems to have done little to strengthen the dollar and with little data out today we may see more USD weakness this week, especially if then we start hearing more sounds of rate rises on this side of the water.