The Euro plunged yesterday, 18 June, along with German government bond yields, which hit a new record low after Mario Draghi said the European Central Bank (ECB) would need to ease policy again if inflation does not get close to its 2 per cent target. Draghi suggested that the ECB was prepared to cut interest rates and could even restart its previous bond-buying programme to support the Eurozone economy, if needed.
The ECB president’s comments received a hostile response from Donald Trump. The US president accused the ECB of manipulating the single currency, saying the Euro dropped against the Dollar “immediately”, “making it easier for them [ECB] to compete against the USA. They have been getting away with this for years, along with China and others.”
The Dollar held close to its near-two-week highs this morning ahead of the Federal Reserve’s interest rate decision due to be announced later today. The expectation is that the Fed will stay put on monetary policy this time but could open the door for an interest rate cut at the next meeting in July.
The futures market has priced in the chance of a July rate cut at 85 per cent. And unless the Federal Open Market Committee (FOMC) surprises everyone, it is hard to imagine the Dollar coming under downward pressure.
However, the focus is on whether or not the greenback will retain its strength after the Fed’s two-day policy meeting. Market participants will pay close attention to the Fed’s views on the economy and Jerome Powell’s comments.
The prospect of the Fed lowering rates has also driven benchmark treasuries yields to near two-year lows while boosting equity prices.
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