Major currencies were stuck in tight ranges in Wednesday’s European session as the market lacked fresh impetus in a relatively quiet trading day. The euro was subdued after ECB President Mario Draghi failed to give a clear signal of stimulus withdrawal, while dollar/yen and cable held near multi-week highs on expectations of tighter monetary policy.
The main event of the day was a hearing in the Dutch parliament where European Central Bank head, Mario Draghi spoke about monetary policy. Draghi said downside risks to the Eurozone economy “have further diminished” but said it was too early to “declare success” on the ECB’s policies, adding that “underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend”. In a further signal that despite the improving outlook the ECB was not ready to scale back its stimulus program, Draghi said the time for exiting stimulus was “not yet here”.
The overall upbeat remarks helped the euro to modestly move higher from a more than one-week low of 1.0858 dollars. But in the absence of a more hawkish tone by Draghi, the euro stood only marginally up on the day at around 1.0880 dollars in late European trading.
The pound continued to flirt with the $1.30 level as traders bet that the hawkish dissent within the Bank of England will grow louder when the Bank announces its latest policy decision tomorrow. The BoE is widely expected to hold rates tomorrow, which has been dubbed “Super Thursday” ever since the Bank decided to publish its meeting minutes and quarterly inflation report alongside its policy announcement statement. Some analysts are speculating that more MPC members will become uneasy about maintaining rates at record low levels when inflation has risen above the Bank’s 2% target.
Meanwhile, the UK prime minister’s strong showing in opinion polls ahead of June’s general election continued to provide underlying support for the pound. Sterling came close to breaking above Monday’s 7-month high of 1.2990 dollars in today’s European session before easing to around 1.2940. It had better luck against the yen as it touched a fresh 4-month high of 148.10 yen.
The dollar shook off the initial impact of the unexpected announcement by President Trump to fire the FBI director as, despite some concerns about the political uncertainty it may create, investors focused on the outlook for US interest rates. Fed fund futures currently point to an 88% probability of a rate hike in June. This helped the dollar not to drift too far away from yesterday’s 8-week high of 114.32 yen.
Also supporting the greenback today was data on US import prices, which rose by more than expected. Import prices were up by 0.5% month-on-month in April, beating forecasts of 0.2%, while March’s figure was revised higher from -0.2% to 0.1%.
In other currencies, the Australian and New Zealand dollars rebounded sharply today as commodity prices recovered slightly. The aussie, which has been hit particularly hard by large falls in iron ore prices, was around 0.5% higher versus the US dollar at 0.7385 in late European session. The kiwi was up even more sharply, hitting a one-week high of 0.6949 ahead of the Reserve Bank of New Zealand’s policy announcement early tomorrow. The RBNZ is expected to keep rates unchanged but may adopt a more hawkish stance given the recent uptick in inflation.
Oil prices rose sharply on Wednesday, buoyed by falling US inventories. Crude stocks in the US fell by a bigger-than-expected 5.25 million barrels in the week ending May 1. Expectations were for a drawdown of 1.79 million barrels. Gasoline and distillate stocks also fell according to the EIA’s latest weekly report. WTI oil futures surged to a near one-week high of $47.08 a barrel after the data.