Last week saw some of the most volatile conditions for the Euro we’ve seen in a long time. During the stronger than expected interest rate hike announced on Thursday the Euro spiked reclaiming recently lost ground versus the US Dollar. However, the fun didn’t last long. During the press conference the message of economic uncertainty continued to shine through widening the chasm of expectations between the Euro zone and the United States. Last week’s event once considered in conjunction with the subsequent press conference left the Euro and Euro rates markets in a state of change.
When the valuations and assumptions of key currencies are brought into question the currency tends to exhibit heightened sensitivity to headlines. The market remains on tenterhooks from news flow from members of the ECB. Yesterday morning proved this sensitivity with comments claiming further oversized hikes could be on the table sending the Euro higher during European morning trading. This also sets the scene for potential risks in the Eurozone later this week.
This week eyes will be on the Federal Reserve as it delivers its latest decision. Markets are already pricing in a 75 basis-point hike leaving little room to reprice rates if the Dollar surprises to the upside leaving the highly improbable risk of a downside surprise only on the table. Markets will therefore be focussing on European data releases later in the week. These data include consumer confidence data on Wednesday in many Euro area nations. Perhaps even more importantly, unemployment and inflation data will be released en masse at the end of the week. Anticipate European volatility therefore whilst markets digest this data in a post 50-basis point hike environment.
Discussion and Analysis by Charles Porter
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