Draghi Hawkishness Helps Euro Skyrocket

Daily Update - 28th June 2017

Yesterday’s Focus

• EUR ECB President Draghi’s speech
• GBP Financial Stability report & BOE’s Governor Carney Speech
• USD Fed’s Yellen Speech

Yesterday’s Explained

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

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.

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”.

Today’s Focus

• BOE Governor Carney Speech
• BOJ Kuroda Speech
• ECB President Draghi Speech
• BOC Governor Poloz Speech

Today’s Market

Today there will be another session for a meeting in Portugal. So, the closely watched panel discussion which brings together central bank governors in the afternoon. In particular, ECB President Mario Draghi, Bank of Japan Governor Haruhiko Kuroda, Bank of Canada Governor Stephen Poloz as well as his predecessor and the current Bank of England Governor Mark Carney will all be joining in at the ECB forum on central banking in Sintra, Portugal. With so many policy makers in one place, some volatility could be expected, or at least it should make for interesting viewing.