ECB President at the European Parliament

Hearing at the European Parliament’s Economic and Monetary Affairs Committee

Introductory statement by Mario Draghi, President of the ECB, 
Brussels, 15 February 2016

Mr Chairman,

Honourable Members of the Economic and Monetary Affairs Committee,

Ladies and Gentlemen,

The first weeks of this year have shown that the euro area and the Union at large face significant challenges. A strong effort by all policy makers will be needed in the months ahead to overcome them. I am therefore grateful to be back before your committee to discuss these challenges and how the ECB can contribute to tackling them.

In my remarks today, I will address in turn the global economic context, recent financial developments and the state of the euro area recovery. I will conclude by briefly presenting our most recent decision to disclose the Agreement on Net Financial Assets – or ANFA – as I know this topic is of concern to some of you.

The state of the global economy

Let me start with the state of the global economy. In recent weeks, we have witnessed increasing concerns about the prospects for the global economy. Activity and trade data have been weaker than expected, turbulence in financial markets has intensified and commodity prices have declined further.

Slowing growth in emerging market economies is a focal point for this uncertainty. In the early years of this century, many emerging economies expanded at a rapid pace. They benefited from increasing integration with the global economy and the tailwinds of buoyant financial markets. As these factors diminish, many countries have to adjust to a new reality. In several economies, the slowdown has revealed and exacerbated structural problems which are increasingly restraining growth. A continuation of the rebalancing process is needed to secure sustainable growth over the medium term. This could imply some headwinds in the short term, which will require close monitoring of the related risks.

One consequence of this adjustment is the divergence of economic cycles. While the recovery in advanced economies is gradually proceeding, the growth momentum in emerging market economies has weakened.

Weaker global demand has also contributed to the recent fall in the price of oil and other commodities, which in turn may have aggravated fiscal and financial fragilities in some commodity-exporting economies. Countries that have suffered worsening terms of trade have seen a sharp decline in activity while investment in their energy sectors has contracted.

Recent financial developments

Since early December, a general deterioration in market sentiment has taken root and has gathered pace over the last week. This initially appeared closely linked to concerns regarding weakening economic activity around the globe – notably in emerging markets – and to potential adverse signals from falling commodity prices. Over time, however, market sentiment has become more volatile and susceptible to rapid change. In this environment, stock prices significantly declined and bank equity prices were particularly hit, both globally and in Europe. The sharp fall in bank equity prices reflected the sector’s higher sensitivity to a weaker-than-expected economic outlook; it also reflected fears that some parts of the banking sector were exposed to the higher risks in commodity-producing sectors. The bulk of euro area listed banks, although they have relatively limited exposure to emerging markets and commodity producing countries, are currently trading well below their book values.

The fall in bank equity prices was amplified by perceptions that banks may have to do more to adjust their business models to the lower growth/lower interest rate environment and to the strengthened international regulatory framework that has been put in place since the crisis. However, we have to acknowledge that the regulatory overhaul since the start of the crisis has laid the foundations for durably increasing the resilience not only of individual institutions but also of the financial system as a whole. Banks have built higher and better-quality capital buffers, have reduced leverage and improved their funding profiles. Moreover, the Basel Committee on Banking Supervision noted that substantial progress has been made towards finalising post-crisis reforms and that the remaining elements of the regulatory reform agenda for global banks are being finalised. The clarification of these elements will provide regulatory certainty for the stability of the future framework. This will support the banking sector’s ability to make long-term sustainable business plans into the future. In fact, central bank governors and heads of supervision indicated that they are committed to not significantly increase overall capital requirements across the banking sector.

In the euro area, the situation in the banking sector now is very different from what it was in 2012. Perhaps most importantly, euro area banks have significantly strengthened their capital positions over the past few years, notably as a consequence of the Comprehensive Assessment conducted in 2014. For significant institutions, the CET1 ratio has increased from around 9 to 13%, making them more resilient to adverse shocks. In addition, the quality of the banks’ capital has also been substantially improved.

With the 2015 Supervisory Review and Evaluation Process (SREP), the ECB has outlined the steady-state Pillar 2 supervisory capital requirements. This means that all things equal, capital requirements will not be increased further. Hence, the banking sector can now conduct much better capital planning. Moreover, in 2015, the banks under ECB supervision further increased profits relative to 2014. This allows banks to have appropriate distribution policies while still meeting regulatory capital requirements and buffers, and to support lending to the economy. In addition, the ECB’s monetary policy actions continue to support banks’ financing conditions and, more broadly, economic activity.

Clearly, some parts of the banking sector in the euro area still face a number of challenges. These range from uncertainty about litigation and restructuring costs in a number of banks to working through a stock of legacy assets, particularly in the countries most affected by the financial crisis. There is a subset of banks with elevated levels of non-performing loans (NPLs). However, these NPLs were identified during the Comprehensive Assessment, using for the first time a common definition, and have since been adequately provisioned for. Therefore, we are in a good position to bring down NPLs in an orderly manner over the next few years. For this purpose, the ECB’s supervisory arm is working closely with the relevant national authorities to ensure that our NPL policies are complemented by the necessary national measures.

The state of the euro area recovery and the role of economic policies

Against the background of downward risks emanating from global economic and financial developments, let me now turn to the economic situation in the euro area. The recovery is progressing at a moderate pace, supported mainly by our monetary policy measures and their favourable impact on financial conditions as well as the low price of energy. Investment remains weak, as heightened uncertainties regarding the global economy and broader geopolitical risks are weighing on investor sentiment. Moreover, the construction sector has so far not recovered.

In order to make the euro area more resilient, contributions from all policy areas are needed. The ECB is ready to do its part. As we announced at the end of our last monetary policy meeting in January, the Governing Council will review and possibly reconsider the monetary policy stance in early March. The focus of our deliberations will be twofold. First, we will examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations. This will depend on the size and the persistence of the fall in oil and commodity prices and the incidence of second-round effects on domestic wages and prices. Second, in the light of the recent financial turmoil, we will analyse the state of transmission of our monetary impulses by the financial system and in particular by banks. If either of these two factors entail downward risks to price stability, we will not hesitate to act.

In parallel, other policies should help to put the euro area economy on firmer grounds. It is becoming clearer and clearer that fiscal policies should support the economic recovery through public investment and lower taxation. In addition, the ongoing cyclical recovery should be supported by effective structural policies. In particular, actions to improve the business environment, including the provision of an adequate public infrastructure, are vital to increasing productive investment, boost job creations and raise productivity. Compliance with the rules of the Stability and Growth Pact remains essential to maintain confidence in the fiscal framework.

The Agreement on Net Financial Assets

Let me conclude by turning briefly to the recent decision to publish the Agreement of Net Financial Assets, also known as ANFA. This is another step to living up to our commitment to be accountable and transparent, both towards you as Parliament and towards the public at large.

The ANFA is an agreement between the ECB and the euro area National Central Banks – the NCBs. It ensures that monetary policy is unaffected by NCB operations related to their national, non-monetary policy tasks.

The right to perform such tasks dates back to the start of Economic and Monetary Union. At that time, the founding member states decided to centralise only central bank functions and tasks that are necessary to conduct a single monetary policy. All other tasks remained with the NCBs. Such national, non-monetary policy tasks include managing the NCBs’ remaining foreign reserves – including gold – after the transfer of foreign reserves to the ECB, managing some non-monetary policy portfolios including those related to pension funds for their employees, or providing payment services to national governments.

When the NCBs hold portfolios not related to monetary policy as part of their national tasks, these portfolios are financed either by central bank money provided by the NCBs or by non-monetary liabilities. This does not interfere with monetary policy as long as it is limited to less than the amount of banknotes needed by the public. This limit ensures that banks still have to borrow from the Eurosystem at the monetary policy rate set by the Governing Council.

Here is where the ANFA comes in. Its purpose is to limit the size of the NCBs’ non-monetary policy portfolios, net of the related liabilities, and thus to ensure that the Eurosystem can effectively implement the single monetary policy.

Of course, when performing national tasks, the NCBs must comply with the Treaty including the prohibition of monetary financing. Moreover, if these tasks were to interfere with monetary policy in any other way, they can be prohibited, limited or have conditions placed on them by the Governing Council.

The publication of the previously confidential ANFA text was a unanimous decision of the ECB and the NCBs in the Eurosystem to live up to our commitment to be transparent. This publication should resolve misunderstandings about ANFA. In particular, it clarifies that the sole purpose of ANFA is to set limits for non-monetary policy operations related to national tasks of the NCBs, which they are allowed to conduct according to the Treaty. Nothing more and nothing less. These limits ensure that the NCBs’ operations do not interfere with the objectives and tasks of the Eurosystem and, in particular, with the single monetary policy.

Finally, complementing the information on ANFA, the ECB also published data on the Eurosystem’s aggregate net financial assets. The NCBs will follow suit and disclose their respective net financial assets when publishing their annual financial accounts. These data provide factual information to the public as to which part of central bank money demand is provided by non-monetary policy operations.

Thank you for your attention, and I look forward to your questions.

Chair Janet L. Yellen Testimony

Chair Janet L. Yellen

Semiannual Monetary Policy Report to the Congress

Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.

February 10, 2016

Chairman Hensarling, Ranking Member Waters, and other members of the Committee, I am pleased to present the Federal Reserve's semiannual Monetary Policy Report to the Congress. In my remarks today, I will discuss the current economic situation and outlook before turning to monetary policy.

Current Economic Situation and Outlook

Since my appearance before this Committee last July, the economy has made further progress toward the Federal Reserve's objective of maximum employment. And while inflation is expected to remain low in the near term, in part because of the further declines in energy prices, the Federal Open Market Committee (FOMC) expects that inflation will rise to its 2 percent objective over the medium term.

In the labor market, the number of nonfarm payroll jobs rose 2.7 million in 2015 and posted a further gain of 150,000 in January of this year. The cumulative increase in employment since its trough in early 2010 is now more than 13 million jobs. Meanwhile, the unemployment rate fell to 4.9 percent in January, 0.8 percentage point below its level a year ago and in line with the median of FOMC participants' most recent estimates of its longer-run normal level. Other measures of labor market conditions have also shown solid improvement, with noticeable declines over the past year in the number of individuals who want and are available for work but have not actively searched recently, and in the number of people who are working part-time but would rather work full-time. However, these measures remain above the levels seen prior to the recession, suggesting that some slack in labor markets remains. Thus, while labor market conditions have improved substantially, there is still room for further sustainable improvement.

The strong gains in the job market last year were accompanied by a continued moderate expansion in economic activity. U.S. real gross domestic product is estimated to have increased about 1-3/4 percent in 2015. Over the course of the year, subdued foreign growth and the appreciation of the dollar restrained net exports. In the fourth quarter of last year, growth in the gross domestic product is reported to have slowed more sharply, to an annual rate of just 3/4 percent; again, growth was held back by weak net exports as well as by a negative contribution from inventory investment. Although private domestic final demand appears to have slowed somewhat in the fourth quarter, it has continued to advance. Household spending has been supported by steady job gains and solid growth in real disposable income--aided in part by the declines in oil prices. One area of particular strength has been purchases of cars and light trucks; sales of these vehicles in 2015 reached their highest level ever. In the drilling and mining sector, lower oil prices have caused companies to slash jobs and sharply cut capital outlays, but in most other sectors, business investment rose over the second half of last year. And homebuilding activity has continued to move up, on balance, although the level of new construction remains well below the longer-run levels implied by demographic trends.

Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market although declines in longer-term interest rates and oil prices provide some offset. Still, ongoing employment gains and faster wage growth should support the growth of real incomes and, therefore, consumer spending, and global economic growth should pick up over time, supported by highly accommodative monetary policies abroad. Against this backdrop, the Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labor market indicators will continue to strengthen.

As is always the case, the economic outlook is uncertain. Foreign economic developments, in particular, pose risks to U.S. economic growth. Most notably, although recent economic indicators do not suggest a sharp slowdown in Chinese growth, declines in the foreign exchange value of the renminbi have intensified uncertainty about China's exchange rate policy and the prospects for its economy. 

This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth. These growth concerns, along with strong supply conditions and high inventories, contributed to the recent fall in the prices of oil and other commodities. In turn, low commodity prices could trigger financial stresses in commodity-exporting economies, particularly in vulnerable emerging market economies, and for commodity-producing firms in many countries. Should any of these downside risks materialize, foreign activity and demand for U.S. exports could weaken and financial market conditions could tighten further.

Of course, economic growth could also exceed our projections for a number of reasons, including the possibility that low oil prices will boost U.S. economic growth more than we expect. At present, the Committee is closely monitoring global economic and financial developments, as well as assessing their implications for the labor market and inflation and the balance of risks to the outlook.

As I noted earlier, inflation continues to run below the Committee's 2 percent objective. Overall consumer prices, as measured by the price index for personal consumption expenditures, increased just 1/2 percent over the 12 months of 2015. To a large extent, the low average pace of inflation last year can be traced to the earlier steep declines in oil prices and in the prices of other imported goods. And, given the recent further declines in the prices of oil and other commodities, as well as the further appreciation of the dollar, the Committee expects inflation to remain low in the near term. However, once oil and import prices stop falling, the downward pressure on domestic inflation from those sources should wane, and as the labor market strengthens further, inflation is expected to rise gradually to 2 percent over the medium term. In light of the current shortfall of inflation from 2 percent, the Committee is carefully monitoring actual and expected progress toward its inflation goal.

Of course, inflation expectations play an important role in the inflation process, and the Committee's confidence in the inflation outlook depends importantly on the degree to which longer-run inflation expectations remain well anchored. It is worth noting, in this regard, that market-based measures of inflation compensation have moved down to historically low levels; our analysis suggests that changes in risk and liquidity premiums over the past year and a half contributed significantly to these declines. Some survey measures of longer-run inflation expectations are also at the low end of their recent ranges; overall, however, they have been reasonably stable.

Monetary Policy

Turning to monetary policy, the FOMC conducts policy to promote maximum employment and price stability, as required by our statutory mandate from the Congress. Last March, the Committee stated that it would be appropriate to raise the target range for the federal funds rate when it had seen further improvement in the labor market and was reasonably confident that inflation would move back to its 2 percent objective over the medium term. In December, the Committee judged that these two criteria had been satisfied and decided to raise the target range for the federal funds rate 1/4 percentage point, to between 1/4 and 1/2 percent. This increase marked the end of a seven-year period during which the federal funds rate was held near zero. The Committee did not adjust the target range in January.

The decision in December to raise the federal funds rate reflected the Committee's assessment that, even after a modest reduction in policy accommodation, economic activity would continue to expand at a moderate pace and labor market indicators would continue to strengthen. Although inflation was running below the Committee's longer-run objective, the FOMC judged that much of the softness in inflation was attributable to transitory factors that are likely to abate over time and that diminishing slack in labor and product markets would help move inflation toward 2 percent. In addition, the Committee recognized that it takes time for monetary policy actions to affect economic conditions. If the FOMC delayed the start of policy normalization for too long, it might have to tighten policy relatively abruptly in the future to keep the economy from overheating and inflation from significantly overshooting its objective. Such an abrupt tightening could increase the risk of pushing the economy into recession.

It is important to note that even after this increase, the stance of monetary policy remains accommodative. The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run. This expectation is consistent with the view that the neutral nominal federal funds rate--defined as the value of the federal funds rate that would be neither expansionary nor contractionary if the economy was operating near potential--is currently low by historical standards and is likely to rise only gradually over time. The low level of the neutral federal funds rate may be partially attributable to a range of persistent economic headwinds--such as limited access to credit for some borrowers, weak growth abroad, and a significant appreciation of the dollar--that have weighed on aggregate demand.

Of course, monetary policy is by no means on a preset course. The actual path of the federal funds rate will depend on what incoming data tell us about the economic outlook, and we will regularly reassess what level of the federal funds rate is consistent with achieving and maintaining maximum employment and 2 percent inflation. In doing so, we will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In particular, stronger growth or a more rapid increase in inflation than the Committee currently anticipates would suggest that the neutral federal funds rate was rising more quickly than expected, making it appropriate to raise the federal funds rate more quickly as well. Conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate. We are committed to our dual objectives, and we will adjust policy as appropriate to foster financial conditions consistent with the attainment of our objectives over time.

Consistent with its previous communications, the Federal Reserve used interest on excess reserves (IOER) and overnight reverse repurchase (RRP) operations to move the federal funds rate into the new target range. The adjustment to the IOER rate has been particularly important in raising the federal funds rate and short-term interest rates more generally in an environment of abundant bank reserves. Meanwhile, overnight RRP operations complement the IOER rate by establishing a soft floor on money market interest rates. The IOER rate and the overnight RRP operations allowed the FOMC to control the federal funds rate effectively without having to first shrink its balance sheet by selling a large part of its holdings of longer-term securities. The Committee judged that removing monetary policy accommodation by the traditional approach of raising short-term interest rates is preferable to selling longer-term assets because such sales could be difficult to calibrate and could generate unexpected financial market reactions.

The Committee is continuing its policy of reinvesting proceeds from maturing Treasury securities and principal payments from agency debt and mortgage-backed securities. As highlighted in the December statement, the FOMC anticipates continuing this policy "until normalization of the level of the federal funds rate is well under way." Maintaining our sizable holdings of longer-term securities should help maintain accommodative financial conditions and reduce the risk that we might need to return the federal funds rate target to the effective lower bound in response to future adverse shocks.

Thank you. I would be pleased to take your questions.

George Soros Again

George Soros is a rich and powerful man. He is chairman of Soros Fund Management which has brought huge returns for investors over several decades and he is known as the man who “broke” the Bank of England back in September of 1992 when he risked $10 billion on a single currency speculation by shorting the British pound. He turned out to be right, and in a single day, the trade generated a profit of $1 billion or as was later reported, closer to $2 billion. 

Soros is also been accused of speculative attacks that triggered the 1997 Asian financial crisis when he took a large bet against the Thai baht.

Soros is now targeting China by asserting that he shorted a large volume of Asian currencies—mainly the Chinese renminbi and the Hong Kong dollar.

Soro’s criticism of the world’s second largest economy began with a speech earlier this month when he said China's economic situation "amounts to a crisis," drawing parallels with the dark days of 2008. He pointed to an estimated $676 billion that China ‘lost’ in 2015, more than the $111 billion that fled all emerging markets -- including China -- in 2014.

At the World Economic Forum in Switzerland, last week, the billionaire and famous philanthropist blamed the Chinese economy for the bearish outlook weighing on global markets and suggested that a ‘hard landing’ for China involving a disruptive collapse in the country's economic growth was "practically unavoidable."

China itself reported last week that it has had the slowest annual economic expansion in 25 years and that it is uncertain how to break the cycle as nervous investors pull their money out of the country in search of better returns elsewhere. This has been putting even greater downward pressure on the yuan.

It's pride notwithstanding, Beijing has every reason to take Soros’s opinion seriously. Over the decades, some of his biggest bets have paid off and China is well aware of its current financial market situation.

The normally stable yuan, whose value is closely controlled by Beijing, has come under pressure in recent weeks and months in overseas markets and from capital outflows. Authorities have injected massive amounts of cash to defend it.

China is trying to keep Soros at bay and has been posting scathing declarations in the media against his public currency inferences and has accused him of “declaring war” on the yuan. Although Soros didn't explicitly mention the yuan in his statement, Beijing has issued a blunt warning to speculators not to bet on a falling currency.

The current display of vitriol has not succeeded in convincing most investors who question how long the heavy intervention by the People's Bank of China can continue. China still has $US3.3 trillion in foreign currency reserves – the largest in the world – but about one-third of this is tied up in illiquid investments. If capital continues to flow out of the country at the current pace, even China will eventually have to start worrying about the drop in its foreign currency reserves.

Yuan Devalued

Last August, China surprisingly devalued the yuan and then in December the PBOC alarmed investors again by signaling it would set the level of the yuan against a basket of currencies rather than just the US dollar. This triggered fears again that China was paving the way for a further weakening of its currency. Many investors, however, see this is just an interim strategy of the PBOC and believe that the bank is committed to a free float of the currency which would allow market forces to determine its level.

The government, however, is uncertain of the success of letting the yuan float freely and is concerned that it would cause a huge deflationary shock to the global economy.

Since China is the world's largest exporter a 20 percent or so drop in the yuan would push down the price of Chinese exports and would squeeze revenue and profit for firms outside China, putting considerable pressure on their costs.

In addition, a sharp drop in the yuan would make it extremely difficult for Chinese firms to meet the interest payments on the $1 trillion in U.S. dollar denominated debt which they have accumulated.

If it decides to continue propping up the yuan, the central bank will either have to raise interest rates, which would cause growth to slow even more sharply, or introduce much stricter capital controls than are in place now.

Whether Beijing allows a free-floating currency or decides to defend the yuan, using central bank intervention backed up by tight capital controls, it will have to communicate clearly its new policy to the market or risk continued currency instability as investors take bets against the yuan.

From Daily Forex. 

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Market Update - Friday 5th February, 2016.

Please find below today's update which gives you an insight into the current market conditions, enabling you to keep informed and up to date on the latest currency movements. 

From Torfx.

Headlines

• BoE cuts growth forecasts – 9-0 vote against hike Sterling.
• Economists point to early 2017 rate rise – Markets price in mid 2018 hike.
• GBP/EUR falls -130 pips – ‘Cable’ close to monthly high.
• Pound down vs. commodity bloc – GBP/NZD hits monthly low.

Sterling

The Pound weakened slightly versus most of the majors yesterday as the Bank of England cut its growth forecasts and the one hawkish member of the monetary policy committee retracted their vote for higher rates.

The BoE elected to leave rates on hold and refrain from additional asset purchases, as expected, but traders were disappointed with the generally dovish message in Governor Mark Carney’s speech. Ian McCafferty’s decision to vote against rising rates after months of voting in favour also weighed on the Pound.

Carney asserted that the next move in interest rates would be up: ‘absolutely, the whole MPC stands by that’, and suggested that rates would be hiked before the current market forecasts of mid 2018. However, GDP forecasts for 2016 and 2017 were cut from 2.5% and 2.6% to 2.2% and 2.3% respectively. Additionally, inflation was projected to remain below 1.0% through 2016 and wage growth was predicted to run at around 3.0% this year.

Economists now expect BoE rates to remain at the current record low until the beginning of 2017.

Euro

The Pound to Euro exchange rate softened by around -130 pips yesterday as BoE Governor Mark Carney did little to assuage market fears that British interest rates could be left on hold for at least another two years.

UK rates have remained at the rock-bottom level of 0.50% for almost seven years now and with central banks across the globe – bar the Federal Reserve – speaking openly about loosening rather than tightening policy investors are not confident in the BoE’s ability to begin hiking rates before 2018.

Indeed, Governor Carney, who was compared to an ‘unreliable boyfriend’ back in 2014 for giving off mixed messages with regards to possible rate rise timings, was labelled a ‘defensive husband’ yesterday after denying he had misled the public with hawkish talk midway through 2015 while still promising to begin the hiking cycle at the appropriate time.

US Dollar

Prior to the Bank of England’s dovish policy announcements the Pound to US Dollar exchange rate rallied to a near one-month high.

The ‘Greenback’ shed value as investors pushed back their expectations for the next Federal Reserve rate hike into 2017. New York Fed President William Dudley mentioned that the US Dollar’s recent strength could prove a problem for the domestic economy if additional tightening measures pushed the currency higher and therefore made exports less appealing to international buyers.

‘Cable’ gave up its gains following the BoE statement, however, a disastrous -2.9% decline in US factory orders and a -5.0% contraction in durable goods orders meant that the Dollar was unable to push ahead against Sterling.

It will be interesting to see how markets react to this afternoon’s US non-farm payroll print. Anything lower than 150,000 could drive GBP/USD higher, while anything above 250,000 could push the Pound lower.

Canadian Dollar

Sterling weakened by over half a cent against the Canadian Dollar yesterday as hopes of a deal between OPEC members and Russia to curb production continued to drive crude prices higher.

The commodity-sensitive ‘Loonie’ was also boosted by the dip in value of the ‘Greenback’, which made oil cheaper – not less valuable – to foreign buyers and subsequently led to a temporary increase in demand.

Australian Dollar

GBP/AUD tumbled by around -70 pips yesterday as dovish BoE rate hike bets damaged the appeal of the Pound. Demand for the commodity-sensitive ‘Aussie’ was also bolstered by weakness in the US Dollar, which allowed risk-correlated currencies to appreciate.

New Zealand Dollar

Sterling sunk to a monthly low against the New Zealand Dollar yesterday, depreciating by around -150 pips, as economic sentiment continued to favour the ‘Kiwi’ following Tuesday’s surprisingly strong labour market report, which saw unemployment plunge from 6.0% to 5.3%.

Data Released 

10:00 EUR Euro-Zone Unemployment Rate (NOV) Medium 10.7%
10:00 EUR Euro-Zone Retail Sales (YoY) (NOV) Medium 2.0%
13:10 CAD Bank of Canada's Poloz speaks in Ottawa Medium

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