Euro recovers from lows
With very little in the way of top-tier economic data, market watchers are focused on the annual central banking conference in Jackson Hole this week where the world’s top central bankers may signal their next policy actions.
Though bets of a policy change have been reduced in recent days, amid the general political turmoil in the US, expectations of a Fed rate hike may rise if chair Janet Yellen emphasises that the risks to inflation objectives and financial stability require careful monitoring in her speech on Friday.
“If Yellen makes this point in her Jackson Hole speech, that reinforces the likelihood that the FOMC [Federal Open Market Committee] will raise rates again at their meeting in December,” said Jordan Rochester, an FX strategist at Nomura in London.
Yesterday, the euro bounced off the intra-day lows to trade broadly flat at $1.1763 against the dollar. It rose to a two and a half-year high above $1.19 earlier this month.
Despite recent losses, it is still up more than 11% so far this year, making it the best performing currency in the G10 currency space.
In line with the general nervousness in the markets before a key event, implied currency volatility of the euro for one-month shot higher to eight.
“Absent some Mario Draghi fireworks this week, buying on dips for euro/dollar may be a better strategy rather than chasing the euro higher at these levels,” said Viraj Patel, an FX strategist at ING Bank in London.
ECB president Mario Draghi will not deliver a new policy message at the Fed conference in Jackson Hole this week, sources have claimed, tempering expectations for the ECB to start charting the course out of stimulus.
But traders are not taking any chances. About $45bn of euro-dollar currency options on the exchange rate will expire in the three days leading up to the Wyoming meeting.
Investors cut short dollar bets, particularly against the Japanese yen with positioning seen stretched before Ms Yellen’s speech on Friday at the Jackson Hole conference.
Reuters
