Asian Currencies Calmer After Draghi

Mario Draghi once again surprised investors with his drastic change in heart. A rather hawkish Draghi reversed his stance on Thursday afternoon and adopted a definite dovish persona. Once again he seems to be promising markets additional stimulus at the March meeting, but this is a song that Draghi has played before. The euro dipped 100 points during Draghi’s press conference but recovered just after. The ECB held rates at their current level. The euro is in the red this morning at 1.0836 after Mr. Draghi made another public appearance early today. In December, the ECB Governing Council cut the deposit rate to -0.3 percent from -0.2 percent, increasing the charge on banks for parking money at the ECB, and expanded its 1.5 trillion euros quantitative easing program. But inflation prospects have turned for the worse, raising a credibility issue for a bank that has undershot inflation for three straight years.

The ECB’s December projections, which already indicated an inflation miss for years to come, were based on crude oil prices averaging $52.2 this year. Draghi also rejected arguments to simply look through the oil price shock, arguing low energy prices are likely to last, a risk that they would drag down the price of other goods and service, creating a downward spiral that is difficult to break. But he said China’s leadership appears to have got a handle on the economy’s troubles and that Europe’s bank sector, a source of stain in the past, appears to be resilient.

The US Dollar Index strengthened by 0.1 percent yesterday as European Central Bank President Mario Draghi hinted that more easing could be delivered as early as March. Also, Philly Fed manufacturing index improved to -3.5, higher than the previous month’s reading of -10.2. However, sharp gains were capped as the Labor Department said Unemployment claims in the US increased 10,000 to a seasonally adjusted 293,000 for the week ended Jan. 16, the highest reading since early July.

US Dollar Index made an intraday high of 99.32 and closed at 99.3 on Thursday. Friday morning the greenback rallied adding 26 points to trade at 99.41.

Commodity linked currencies are trading in the green on the hopes of additional stimulus from both China and the Eurozone. The Aussie is up 3 points breaking above the 0.70 level while the kiwi gained to 0.6531.

British Pound recovered marginally to trade at 1.4190 as markets continued to price in political risks linked to the British economy. Pound appreciated by 0.19 percent in yesterday’s trading session on the back of weakness in dollar. However; sharp upside was capped on the back of mixed economic data. UK unemployment fell unexpectedly in December whereas UK average earnings declined more than forecasted. Bank of England Mark Carney said that policymakers want to see faster U.K. growth and stronger inflation before raising interest rates. Carney said “It is clear to me that since last summer, progress has been insufficient to warrant a tightening of monetary policy,” “Now is not the time to raise interest rates.” In intraday Pound touched a high of 1.4080 and closed at 1.4214 against The pound is expected to trade with negative bias on Strong dollar, dovish statement from Bank of England and downbeat economic data from UK. Weak economic data’s from the country is hurting confidence over the country’s economic outlook.

The yen, the safe asset, depreciated to 117.32 after reaching 115.98 at one point as equity markets rebounded in Asia. Yen is expected to gain strength as the demand for safe haven may go up as the investors turned risk averse on concern over global economic slowdown. IMF slashed its global growth forecast. The Bank of Japan Governor said central bank is not considering any plans to ease monetary policy at the moment. However, sharp gains may be prevented on the back of the strong dollar, unsatisfactory economic data and divergence in monetary policy.