In US trade, the euro drifted modestly against the dollar on fears the ECB’s next meeting is probably too early for the Central Bank to finalise the details of its bond-buying programme.
In an interview with a German magazine, Mr Draghi said that the ECB ’may need to adopt exceptional measures to carry out its mandate of maintaining price stability‘. His comments also suggested the ECB is focused on removing the risk premium in bond yields related to fears of a euro breakup. With time running out to finalise all the details of its bond purchase programme before its next meeting on September 6, the market appears to be starting to price in the prospect of another bland ECB press conference lacking in specifics.
Patience is certainly something the market is running thin on at the moment. The same could be said of Ben Bernanke and the Fed. For months now the Fed have rolled out the same (tired) old line that it stands willing and able to act with further accommodation if and when necessary. One suspects that a repeat of that mantra at Jackson Hole this weekend will not be well received. The market wants action, something to snap it out of its current malaise, not more of the ‘wait and see’ approach. Overnight, the USD index strengthened, partly due to a stronger-than-expected pending home sales print and slight upwards revision to Q2 GDP (1.7% from 1.5%), but also because there is a growing feeling Mr Bernanke will again be very guarded in what he says, providing few definitive clues as to the Fed’s stimulus intentions.
While the euro lost about 30 pips over the course of the European and US sessions to close US trade at 1.2530, the performance of the pound was somewhat confounding, with sterling showing some modest strength, rising from 1.5815 into the mid-1.5830s. While there was no obvious explanation for this, it should not surprise either. Volumes across all assets classes this week have been paper thin, with investors and traders alike divided in opinion as to what the outcomes and reactions to this weekend might be. In early Asian trade, both crosses are essentially unchanged.