Euro jumps ahead of midweek ECB meeting, Fed Meeting Minutes and Brexit Summit

Apr. 8, 2019 (Western Union Business Solutions)  – A big week for Europe got off to a positive start for both the euro and sterling. America’s dollar softened which lent support to commodity rivals like Canada. The weaker U.S. currency allowed oil prices to push to five-month highs above $63. Last week’s U.S. jobs report did little to excite dollar bulls as slower wage inflation suggested the Federal Reserve was all but done raising interest rates. And while hiring bounced back smartly with a gain of nearly 200,000 in March, the pace of job growth slowed over the first quarter to a monthly average of 180,000, down from the 223,000 it averaged last year. Wednesday is a big day this week when the EU holds a Brexit summit, the ECB issues a policy decision and President Mario Draghi holds a news conference, and the Fed releases the minutes from its last meeting.

Nothing like caution ahead of an ECB meeting to ease pressure on the euro. Europe’s single currency rose above one-month lows as investors pared bearish bets ahead of Wednesday’s ECB decision. While no changes to policy are expected this week, the main focus will be on how dovish the ECB president sounds in the wake of area inflation falling to a danger zone below 1%. The euro could bounce higher if Mr. Draghi signals that its current policy prescriptions of rock bottom interest rates are enough to spur an economic rebound in the months ahead.

Sterling ticked higher ahead of a week that could see heightened volatility. Britain’s leader, Prime Minister Theresa May, is holding crunch Brexit talks with the opposition Labour Party to try to forge a compromise deal ahead of an EU summit on Wednesday. That’s when Mrs. May hopes the EU will accept her second request to push back the Brexit deadline, this time to June 30 from April 12. But if a compromise deal with Labour remains elusive, it would keep alive the risk of Britain crashing out of the EU without a deal as soon as Friday, the dire scenario that could potentially fuel a significant slide in the U.K. currency.

A weaker U.S. dollar extended a hand to the loonie which rose out of its biggest hole in a week. Fresh signs of a moderating Canadian economy could make gains tougher to sustain for the loonie, however. That’s because Canada’s employment report last week showed a surprise loss of jobs. Consequently, the Bank of Canada appears less likely to veer from its cautious rate path anytime soon. The BOC next meets on April 24, when it is all but certain to keep borrowing rates unchanged at 1.75% amid economic uncertainty at home and abroad.

The buck got off to a sluggish start to the week after mixed jobs data last week did little to quash chances of the Fed cutting interest rates by year-end. Stronger hiring is always welcome but dollar bulls took exception with weaker wage growth, an outcome more conducive of steady to lower interest rates than higher ones. The buck’s sights this week will be on European developments on Brexit and the ECB, and Wednesday events like the minutes of the last Fed meeting and consumer inflation which is forecast to accelerate.


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