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Optimistic Draghi Spikes Euro to Nine-Month High

By:
James Hyerczyk
Updated: Jun 28, 2017, 00:06 UTC

The Forex market was in focus on Tuesday as volatility was driven by central banker speeches throughout the day. The Euro rose against the U.S. Dollar to

Mario Draghi

The Forex market was in focus on Tuesday as volatility was driven by central banker speeches throughout the day.

The Euro rose against the U.S. Dollar to a more than nine-month high on Tuesday, boosted by optimistic remarks by European Central Bank President Mario Draghi. The British Pound also advanced following the release of the Financial Stability Report and a speech by Bank of England Governor Mark Carney. The U.S. Dollar was supported by upbeat consumer confidence data and hawkish remarks from Federal Open Market Committee Member Patrick Harker. Federal Reserve Chair Janet Yellen also spoke at London’s British Academy on the banking system.

EURUSD
Daily EUR/USD

EUR/USD

ECB President Draghi triggered a surge in the EUR/USD with hawkish comments which may have opened the door to steps that might begin to reduce the central bank’s emergency stimulus to the economy.

At a conference in Portugal, Draghi said the ECB could adjust its policy tools of sub-zero interest rates and massive bond purchases as economic conditions improve in Europe. He also said that any changes in policy should be gradual because “considerable” monetary support is still needed. He also noted that a rebound in inflation will depend on favorable global financing conditions.

GBPUSD
Daily GBP/USD

GBP/USD

The GBP/USD firmed following the release of the Financial Stability Report. The Bank of England took action by tightening its controls on bank credit by increasing its counter-cyclical capital buffer from 0% to 0.5%. It also said that it expects to raise the buffer to 1% in November. This move is necessary to protect banks against a possible financial market crash when the UK exits the EU.

BoE Governor said that monetary policy is the “last line of defense” in ensuring financial stability. Carney also said that the central bank was working with firms, regulators and European authorities to reduce risks surrounding the worst possible outcome – the UK leaving the EU with a deal.

U.S. Dollar Index
Daily September U.S. Dollar Index

U.S. Dollar and Fed

Philadelphia Fed President Patrick Harker helped provide support for the U.S. Dollar when he said he supports the decision to raise interest rates again this year, given recent inflation weakness, even though he predicts prices will take longer to rebound to the Fed’s goal.

“I’m sticking to my outlook that we’re on the right path,” Harker told the European Economics and Financial Center in London, according to his prepared remarks. “In the case of inflation, I’ve seen the factors exerting downward pressure as temporary.”

Fed Chair Janet Yellen spoke little about monetary policy, but reiterated her view that the Fed would raise interest rates slowly. She also said that she did not expect another financial crisis “in our lifetime”.

“Would I say there will never, ever be another financial crisis?” she said at the question-and-answer event. “Probably that would be going too far, but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.”

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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