Euro Rallies as ECB Proves Less Dovish than Anticipated

Australian Dollar Benefits from Rivals’ Weakness

Lingering anxiety over Covid-19 and the outlook of the global economy failed to put any particular pressure on the Australian Dollar yesterday.

A slight easing in consumer inflation expectations for September also did little to dampen the appeal of the ‘Aussie’. With the Reserve Bank of Australia (RBA) looking unlikely to act in the near future, AUD exchange rates held onto a positive footing.

However, any fresh bout of market risk aversion could easily dent the appeal of the Australian Dollar ahead of the weekend.

EU’s Legal Warning Fuels Renewed Pound Sell-off

The Pound fell sharply out of favour once again overnight, responding to the latest developments in the controversy surrounding Boris Johnson’s proposed Internal Market bill.

GBP exchange rates were exposed to another bout of selling pressure as EU lawyers indicated that the bill has already breached the withdrawal agreement. Added to this, the European Commission released a statement saying the bill has ‘seriously damaged trust’ between the two sides.

While talks between the UK and EU continued, the increasingly sour state of relations fuelled further bets on a no-deal outcome. Meanwhile, another sharp contraction in July’s UK gross domestic product may push the Pound towards deeper lows against its rivals.

Euro Shakes off ECB Announcement as Policy Remains Unchanged

European Central Bank (ECB) President Christine Lagarde failed to put pressure on the Euro, leaving the single currency free to push higher across the board during Thursday’s European session.

As Lagarde downplayed the exchange rate’s importance to monetary policy, investors piled into the Euro once again. Even though the central bank still signalled the possibility of further monetary loosening to come, its improved outlook offered EUR exchange rates a boost.

However, confirmation that the German inflation rate flat-lined in August could knock some of the wind out of the Euro’s sails this afternoon.

US Dollar Softens on Jobless Claims Disappointment

US initial and continuing jobless claims disappointed forecasts last week, highlighting the challenges still facing the labour market.

The US Dollar was on the back foot as fears of an extended downturn weighed on the minds of investors as continuing claims unexpectedly increased. With the recovery of world’s largest economy showing signs of stalling the US Dollar struggled to find support.

Even so, an uptick in August’s headline inflation rate may offer USD exchange rates a boost, with higher inflation likely to diminish some of markets’ worries over the economy.

Oil Worries Keep Up Pressure on Canadian Dollar

The Canadian Dollar came under pressure against many of the majors as the impact of the Bank of Canada’s (BoC) policy announcement faded.

Lingering concerns over global demand for crude oil continued hanging over CAD exchange rates. Until oil prices recover the commodity-correlated Canadian Dollar will remain at risk of further selling as worries over the economic outlook persist.

With forecasts pointing towards a sharp drop in the second quarter capacity utilisation reading, the mood towards the Canadian Dollar could sour further this evening.

New Zealand Dollar Stumbles Thanks to Retail Sales Slump

August’s weakening in retail card spending weighed heavily on the New Zealand Dollar, offering fresh evidence of the impact of the Covid-19 crisis.

With consumers appearing less willing to spend, confidence in the health of the New Zealand economy diminished, pushing NZD exchange rates lower. In the absence of any particular improvement in risk appetite, support for the New Zealand Dollar weakened.

Nevertheless, if August’s business PMI remains firmly in expansion territory this may limit the risk of further NZD exchange rate weakness.

Data Releases

September 11th 08:30 NZD Business NZ PMI (AUG) 58.2
September 11th 16:00 EUR Germany Consumer Price Index (AUG) (YoY F) 0%
September 11th 16:00 GBP Gross Domestic Product (YoY) (JUL) -11.3%
September 11th 22:30 CAD Capacity Utilisation (Q2) 70.2%
September 11th 22:30 USD Inflation Rate (YoY) (AUG) 1.2%

Louisa Heath