Euro falls to a fresh two-month trough against the greenback on concerns over further stimulus program from ECB: Oct 26, 2015

Market Review – 23/10/2015 17:35GMT 
 
Euro falls to a fresh two-month trough against the greenback on concerns over further stimulus program from ECB

The single currency fell to a fresh two-month low versus dollar on Friday as hints of additional stimulus measures by the European Central Bank on Thursday and a surprise rate cut in China overshadowed the release of positive economic reports from the euro zone earlier in the day.

During the day, although euro staged a recovery versus the greenback after extending selloff in previous session to a low of 1.1072 ahead of Asian open, price came under renewed pressure at 1.1340 in European morning and later tumbled to a fresh two-month trough at 1.1001 in New York afternoon.

Earlier, research group Markit said that Germany’s preliminary manufacturing purchasing managers’ index ticked down to 51.6 this month from 52.3 in September, while the services PMI rose to 55.2 from 54.1. Markit’s preliminary manufacturing PMI for France came in at 50.7 in October while the services PMI ticked up to 52.3 from 51.9. For the entire euro zone, Markit said manufacturing PMI remained unchanged at 52.0, from 52.0 in the preceding month, while service PMI rose to 54.2 in October from previous reading of 53.7.

China’s central bank cut interest rates for the sixth time since November on Friday, and it again lowered the amount of cash that banks must hold as reserves in another attempt to jumpstart a slowing economy, Reuters news reported. The PBOC said on its website that it was lowering the one-year benchmark bank lending rate by 25 basis points to 4.35 percent, effective from Oct. 24. The one-year benchmark deposit rate was lowered by 25 basis points to 1.50 percent. The reserve requirement ratio (RRR) was also cut by 50 basis points for all banks, taking the ratio to 17.5 percent for the biggest lenders, while banks that lend to agricultural firms and small companies received another 50-basis-point reduction to their RRR.

Versus the Japanese yen, although U.S. dollar tanked to a session low of 120.23 in European morning due to initial intra-day gain in eur/usd pair, price pared all its early losses and rose above Thursday’s high of 120.99 to a fresh 6-week peak at 121.39 in New York afternoon, helped by a surprise rate cut from China central bank and the upbeat U.S. manufacturing PMI.

The U.S. flash purchasing-managers’ index compiled by data provider Markit rose to 54.0 this month, up from 53.1 in September, exceeding market’s expectation of 52.9 and at highest since matching 54.0 in May.

In other news, Reuters news reported on Friday that the Bank of Japan will cut its growth and inflation outlook for this fiscal year at a rate review next week but only slightly tweak its projections for next year, sources said, possibly tempering expectations that the central bank will soon ease monetary policy further.

By not straying far from its current projections for next year, the BOJ can maintain that it is still broadly on course to meet its inflation goal of 2 percent next year without needing to step up its massive asset purchase program, people with direct knowledge of the matter told Reuters.

As Japan flirts with recession, hit by weak exports, the BOJ is preparing to cut its core consumer inflation forecast for the fiscal year that began in April to below 0.5 percent in a semi-annual report due out on Oct. 30, the sources said. It forecast inflation of 0.7 percent three months ago.
But the bank, which is trying to bring an end to decades of deflationary pressure, will only cut by 0.1-0.2 point its forecast that price rises will accelerate to 1.9 percent next fiscal year, keeping it near its target, they said.

Elsewhere, the British pound tracked euro’s intra-day swing closely but with a smaller magnitude due to demand of sterling versus yen and euro. The British pound found renewed buying at 1.5376 ahead of Asian open and then briefly climbed to 1.5419 in European morning before falling below previous session’s low of 1.5369 to 1.5326 near New York midday.

Data to be released :

Germany Ifo reports, Bundesbank monthly report, UK BBA mortgage approvals, CBI industrial trends, U.S. new home sales on Monday.

New Zealand trade balance, Australia CPI, Switzerland UBS consumption indicator, UK GDP (prelim), U.S. durable goods orders, Redbook, building permits (revised) and consumer confidence on Tuesday.

New Zealand RBNZ rate decision, Japan retail sales, Germany Gfk consumer sentiment, France consumer confidence, Italy consumer confidence, business confidence, U.S. goods trade balance on Wednesday, Fed’s interest rate decision on Wednesday.

Japan industrial output, industrial production, Australia exports and imports, UK Nationwide house price, Germany unemployment reports, CPI and HICP, euro zone business climate, consumer inflation expectation, economic sentiment, industrial sentiment, U.S. pending home sales on Thursday.

Japan all household spending, CPI, unemployment rate, construction orders, housing starts, New Zealand NBNZ Business outlook, UK GfK consumer confidence, Australia housing credit, PPI, France consumer spending, producer prices, Switzerland KOF indicator, Italy unemployment rate, CPI (prelim), producer prices, euro zone inflation (flash), unemployment rate, U.S. employment costs, employment wages, PCE, personal consumption real, personal income, consumption, core PCE, Chicago PMI, and Canada GDP on Friday.

Euro falls to a fresh two-month trough against the greenback on concerns over further stimulus program from ECB: Oct 26, 2015