Euro falls to fresh 14 year low after upbeat Yellen comments

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21 December 2016

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The Euro declined to its lowest level since 2002 on Tuesday, with some relatively hawkish comments from Chair of the Federal Reserve Janet Yellen on Monday evening keeping the US Dollar well supported for another day.

Y
ellen failed to mention monetary policy, although claimed that the jobs market in the US was the strongest it has been in the past 10 years.

Meanwhile, Sterling slipped for the second day as investors continued to fret about a possible long and drawn out exit from the European Union. Speaking in the House of Commons, Prime Minister Theresa May declined to rule out the possibility that the UK could still pay into the EU budget in order to obtain some access to the single market after Brexit.

The Japanese Yen also weakened overnight after the Bank of Japan announced its latest monetary policy statement, keeping its main interest rate unchanged at -0.1%. The BoJ did, however, raise its assessment for the Japanese economy for the first time since May 2015 on the back of a weaker Yen and improved growth prospects following Donald Trump’s election victory.

All in all this week has been a relatively quiet one ahead of the traditionally subdued Christmas period. US housing data this afternoon will be the only significant economic release among the major economies today. Absent any political or economic announcements we expect the US Dollar to remain well supported in the next few days as attention remains firmly on expectations for multiple interest rate hikes by the Federal Reserve in the US next year.

Major currencies in detail

GBP

Ongoing Brexit concerns sent the Pound 0.3% lower for the day against the US Dollar.

The Pound was barely moved despite a set of very strong retail sales figures from CBI, which showed that sales accelerated at their fastest pace since September 2015 this month. Sales growth was broad based, with sales of clothing and internet volumes continuing to perform strongly. Sales are, however, expected to slow somewhat at the beginning of next year.

Public sector borrowing figures this morning will be the only economic data release in the UK today. Attention remains firmly on political concerns ahead the triggering of Article 50, expected to take place in early 2017.

EUR

The Euro fell again for another session on the back of broad US Dollar strength, ending the day 0.1% lower against the greenback.

Producer prices in Germany added to the growing list of encouraging economic news coming out of the Eurozone, suggesting that the European Central Bank may be reluctant to increase their asset purchasing programme further next year. Prices rose for the first time in three years last month, increasing 0.1% on a year previous following a larger-than-expected 0.3% jump on a month previous.

Consumer confidence data out this afternoon is expected to remain mostly unchanged. The ECB’s economic bulletin on Thursday could receive some attention today.

USD

The US Dollar index remained around its highest level since 2002 yesterday, still buoyed by expectations for multiple interest rate hikes in the US next year.

Economic and political news was typically quiet in the run up to the Christmas period yesterday, with no major data releases or announcements.

Existing home sales this afternoon could shift the US Dollar today. Durable goods orders on Thursday remains the main economic release in the currency markets this week. With trading low and announcements at a premium, we think the US Dollar will continue to trade within relatively narrow bands until the New Year.

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