Currency market. Weekly review (31.03 – 04.04.2014)

The euro fell to the lowest in a month against the dollar after German newspaper FAZ report stated that ECB has modeled buying up to EUR 1 trln via QE. Inflation could be boosted by 0.2%-0.8%, the model shows.

Mario Draghi, President of the ECB     www.ecb.europa.eu   

European Central Bank President Mario Draghi strengthened his pledge that policy makers were ready to take further steps to counter any risk of deflation.

The 18-nation currency dropped for the first time in five days versus the yen as the ECB kept its benchmark interest rate at a record low at its monthly meeting.

EURO

The ECB left its benchmark interest rate unchanged at a record low 0.25%, matching economists’ projections. Central bank officials held the deposit rate at zero and the marginal lending rate at 0.75%.

Draghi said that the central bank discussed the possibility of using quantitative easing among a range of measures at today’s monthly meeting. “The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation,” he said.

Euro zone inflation fell to the lowest level in almost five years last month at just 0.5% in March, below expectations, which will heap more pressure on the ECB which maintains that it does not yet prove a significant threat to the economy. The ECB's faith in their 'no deflation threat' mantra was restated yesterday as ECB's vice president Constancio said he doesn't expect the euro zone to slip into deflation

POUND

The pound weakened versus the dollar after U.K. services growth slowed. March UK Markit/CIPS services PMI came out worse than expected at 57.6 vs 58.1, and 58.2 previously.

Earlier data showed UK PMI index fell to 55.3 in March versus 56.2 in February, missed forecasts at 56.7.

YEN

The yen fell for a fourth day against the dollar. Japanese companies have signaled confidence in Prime Minister Shinzo Abe’s efforts to stamp out deflation. Consumer prices will rise 1.5% over the next 12 months and 1.7% in three years, according to companies responding to the Bank of Japan’s Tankan survey.

The yen broke through the Yen104-to-the-dollar mark. Experts of Rabobank expect USD/JPY

at 107.00 on a 6 mth view.

COMMODITY CURRENCIES

AUSSIE: In Australia, retail sales rose 0.2% in February from the previous month, when it gained 1.2%, a government report showed today. The median estimate was for a 0.3% increase.

RBA Stevens said unemployment rate will go up a little further yet:

-but current jobless rate is low historically;

-jobs will grow in other sectors;

-people should remember that home prices can fall as well as rise.

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