The U.S dollar suffered a big blow on Friday as stock market controller reflected on the statement made by the Central bank President Mario Draghi and Federal Reserve Chairperson Janet Yellen during the Jackson Hole, Wyoming Central Bankers’ Conference. The Euro rose by +1.0509.
The Euro hit an all high of $1.1940. Before this, it’s recorded high traded $1.1921. This means that the Euro went up by at least 1.05% which was also the best recorded daily percentage gain in over two months. The dollar also fell by 0.2 percent against the Yen trading at 109.30 Yen.
The Euro has climbed up by almost 13 percent since the beginning of the year taking advantage of the political instability experienced in Washington and the Federal Reserve’s gradual monetary tightening pace.
No Clues on Policy Plans
Throughout the conference, investors were on the lookout for any clues indicating the policy plans of the Federal bank including the exact timing of its balance sheet unwinding but unfortunately neither Janet nor Draghi provided any insights in her speech.
In her speech, Yellen did not make any reference to the U.S monetary policy choosing to focus on the various U.S regulations that have been in place after the 2007-2009 financial crises. She gladly indicated that the regulations had strengthened the financial system with the eyes of the controllers set on the looming economic growth. Yellen suggested that any future changes to the regulations need to be modest. Immediately after her speech, the dollar index plunged to a more than 8-month low.
On the other hand, Draghi chose to concentrate on other issues such as the solid global recovery. According to Karl Schamotto, the Director of global market strategy at Cambridge Global Payments in Toronto, the primary motivation of the traders is the fact that the Central Bank of Europe is less concerned about the strength of the Euro despite the influence that it has on core inflation and growth metrics within the European Union member states.
Schamotto also notes that the traders had expected Draghi to address the issues surrounding the downward trend of the currency given that the governing council of the Central Bank had become increasingly concerned about the strength of the Euro. The failure of Draghi to talk the euro down during the conference gave the traders the green light to buy even more euros.
The Dollar Selloff
The selloff in the dollar seemed counter-intuitive to many traders going into the conference, and they had hoped that the trend would change after Draghi had delivered his speech. That was the most likely scenario, but unfortunately, it did not happen.
According to Brad Bechtel, the Managing Director of FX at Jefferies, Summer Fridays usually experience low volumes which make it hard for currencies to stick to their highs as the day progresses. Betchel believes that this is the reason why the Euro came off of its high again.
Friday morning, the ICE U.S Dollar index which is the official gauge of the greenback against other six leading currencies traded at 92.55590, back from a midday low of 92.465, the lowest level the gauge has hit since the beginning of the year.
The Federal Open Market Committee (FOMC) has not relented in its effort of communicating to the traders its intention to continue tightening their policies, and up to this point, they got no reason to reverse their decision.
As this was happening, the British sterling pound GBP, rose by 0.6 percent to trade at $1.2872 on Friday compared to the closing rate of $1.2801 on Thursday evening. Within the past one week, the Sterling pound has gained 0.4 percent.
The Federal bank has already provided a green light signaling its intention to announce the start of tapering its massive $4.5 trillion balance sheet in September. This means that any discussion regarding rate increase shall be put on hold until at least December.
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