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Euro under fire as Draghi confirms December stimulus review

Euro under fire as Draghi confirms December stimulus review

We come in this morning with the Euro significantly weaker following Mario Draghi’s speech yesterday evening. The European Central Bank (ECB) president reiterated the dovish tone used in October which caused the Euro to fall against both the Dollar and the Pound. Draghi confirmed that the ECB will review the amount and type of stimulus required in the December council meeting.

Services PMI data has been released this morning with both Spain and France both posting a small improvement in their readings, while Germany was shown to be growing too, but at a slightly slower pace. The Eurozone as a whole has pared back marginally to 54.1 from 54.2 previous. Neither of these are likely to move the Euro rate however.

Yesterday, the UK PMI construction data was released and showed a marginally weaker than expected figure at 58.8 which came in from 59.9 in the previous month. The data showed a strong fundamental tone with all sectors showing some resilience. Market participants were unclear over underlying trends given the huge difference between PMI surveys and the ONS construction output estimates. Sterling maintained a firm tone against the Euro but weakened against the Dollar. The PMI Market services data will be watched closely today ahead of Thursday’s Bank of England policy decision. Data this morning in the form of the BRC shop prices showed a 1.8% decline on the year to September. This should maintain expectations of weak inflation and make it more difficult for the Bank of England to justify raising interest rates tomorrow.

The Dollar firmed on Wednesday in line with higher U.S Treasury yields, as a regional rally in equities whetted investors’ appetite for risk. An upbeat jobs report on Friday would lead to increased bets that the US Federal Reserve could be on track to raise interest rates next month. Yields went up after an Asian shares surged after an overnight rally that pushed the US Treasury prices down. As yields go up this will help push the Dollar ahead of the U.S payrolls data later on Friday. Today Janet Yellen talks before Congress to explain the current economic situation and the policies applied to improve it, which can spark volatility across the board.

Speculation also returns to the forefront today as the ISM Non-Manufacturing PMI which was previously 56.9 with a consensus of 56.5. Governor Brainard is dovish while Chair Yellen, vice Chair Fischer and Fed President Dudley are the core middle ground cautiously mulling a December rate hike.The Federal Open Market Committee statement referred to the group’s next meeting on Dec. 15-16.

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