Currency Traders Shift Attention To The European Central Bank & Bank Of England Meeting

The US dollar has rallied steadily since the conclusion of the Federal Reserve meeting last week. The US dollar had fallen to the low end of the 79.00 price range on October 25^th.  In the Asian session this morning the greenback is up 4 pips trading at 80.85 weighing heavily on its crosses. The euro is exchanging at 1.3480 after touching the 1.38 price level last week. The currency gave up 11 more points this morning ahead of the ECB meeting this week. Data last week showed a drop in inflation below the ECB’s forecast and a rise in unemployment to 12.2%. This combination of data has placed the ECB in a very uncomfortable situation, pushing the members into action after months of inaction.  The European Central Bank is likely to send a dovish message this week that more monetary help will be on the way before long. After a plunge in inflation to 0.7 percent in the year to October, well below the ECB’s target of just under 2 percent, UBS and RBS are among those who reckon a rate cut could come as soon as Thursday’s policy-setting meeting. At the minimum traders expect ECB President Mario Draghi to indicate that the balance of risk has tilted toward further easing, partly because the recent strength of the euro will hurt exports with a lag. But many believe it would make more sense for the ECB to hold fire until December, when the bank’s staff updates its growth and inflation forecasts. A growing number of economists expect a rate cut by the European Central Bank either next week or in December, sending the euro sliding to a two-week low against the dollar on Friday and continues downward on Monday.

Sterling posted its largest weekly decline versus the dollar since July as signs the U.S. economy is strengthening fueled bets the Federal Reserve will slow stimulus that tends to debase the greenback. The pound continues to ease this morning at 1.5922 giving up another 5 points to the stronger US dollar. The GBP fell for a second week against the U.S. currency as a gauge of whether U.K. data is beating forecasts dropped to the lowest level since June. Gauges of consumer sentiment and manufacturing output both fell short of economists’ estimates. The pound strengthened the most in five weeks versus the euro amid speculation the European Central Bank will cut interest rates as soon as next week to revive growth. U.K. gilts dropped, with 10-year yields rising from a two-month low.

Economists unanimously expect the Bank of England this week to keep its short-term policy rate at 0.5 percent and its asset purchases at 375 billion pounds, even though the British economy has logged two consecutive quarters of robust growth and house prices are surging in and around London.

A quick look at Asian currencies this morning the Aussie has steadily gained against the stronger dollar after retail sales exceeded expectations. The AUD is trading at 0.9480 while the kiwi is trading flat at 0.8260 as traders are on holiday. The Japanese yen eased against the US dollar to trade at 98.75