The EUR/USD rose to a two-week high on June 6.
Market participants cited several factors that could have fueled the gain in the currency pair, including recent updates on European Central Bank stimulus plans and robust U.S. data that could make the Federal Reserve less likely to slow down its current tapering, Reuters reported.
The ECB’s intentions to ease monetary policy could easily motivate market participants to trade their euros in for currencies that generate higher yields, according to the news source. Steven Englander, global head of G10 FX strategy at CitiFX, commented on the situation.
“One central bank providing liquidity and another seeing data that is not going to change its mind on removing liquidity or the pace of normalization leads to an environment where risk is back on the table for the carry trade,” he told the news source. “That also benefits emerging market currencies.”
Individuals interested in forex trading might benefit from knowing about the importance that market experts placed on both central banks when explaining the movement of the EUR/USD. These investors might also want to know about the substantial visibility generated by a U.S. monthly jobs report. Many market participants pointed to this as a key indicator that could impact Fed policy.
Free Reports:
The U.S. Department of Labor report revealed that during the month, American employers added 217,000 to payrolls. The unemployment rate held steady at 6.3 percent. The number of jobs created surpassed the predictions of economists participating in a Bloomberg poll, who had had forecast that the nation would add 215,000 positions. Bill Schultz, who oversees $1.2 billion as chief investment officer at Bethlehem, Pennsylvania-based McQueen Ball & Associates, commented on the situation.
“The data was surprisingly right on the line,” he told the new source. “It painted a portrait of an economy that’s growing, albeit gradually – not too fast, not too slow. The markets have risen this week in anticipation of this, plus what happened overseas with the ECB rate movement.”
After the government agency released this report, the EUR/USD currency pair rose to 1.3677, before retreating to 1.3635, according to Reuters. This could be seen as part of a broader trend, as the common currency has fallen almost 2 percent relative to the U.S. dollar since a policy meeting the ECB held on May 8. Robert Lynch, head of G10 FX strategy at HSBC, stated that the currency pair could fluctuate further as a result of this key event.
“Nothing really has changed in the U.S. scenario and I don’t think the dust has settled from the ECB,” he said, the media outlet reported. “The fact is the euro is lower than when we wholly anticipated the easing (by the ECB).”
Now, markets will largely focus on the actions of the Fed, one London-based dealer told the news source.
Global investors have been scrutinising the statements of Fed officials since Ben Bernanke stated halfway through 2013 that the financial institution could start tapering its stimulus that year. This event triggered sharp volatility in the markets, and market participants have been paying strict attention ever since.
The central bank finally lowered its bond purchases at the beginning of this year. Starting late in 2012, the Fed bought $85 billion worth of debt-based financial instruments every month. Then, in January 2014, the financial institution cut these purchases to $75 billion per month, and announced two more reductions later on.
If the economy improves at a pace strong enough to create jobs but not robust enough to drive significant inflationary pressures, the Fed will have a strong environment in which it can continue to taper its stimulus.
Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC in New York, spoke to such a situation, according to Bloomberg.
“The market likes this steady state of economic improvement,” he told the news source. “A really weak number would raise economic concerns that the economy is rolling over, and a too-strong number would cause concern about the Fed accelerating its tightening timetable. It’s a sweet spot for the market.”
The Fed has stuck with its current plan to gradually reduce stimulus, even though some U.S. economic data has been more robust recently, according to Reuters. Many feel there is at least a degree of certainty that the Fed will slowly keep making monetary policy tighter, which could have a significant impact on the value of the greenback.
However, some believe that the ECB will have a hard time depreciating the euro relative to other currencies, the media outlet reported.
Investors interested in forex trading might benefit from knowing about this speculation surrounding the EUR/USD.
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