Forex’s euro fluctuation around ECB meeting

  • By Harrison Cole

  • June 19, 2018
  • 1:28 am BST

After the eventful past week in the markets, various changes can be noted that affect forex trading. Two of the main influences occurred after the US Federal Reserve’s statement on Wednesday 13 June when the dollar dropped and the euro increased before the European Central Bank (ECB) made its policy announcements on Thursday 14 June.

From the US announcement it can be surmised that interest rates have increased with the mentality that the American economy could soon be at its strongest. However, this did cause the US dollar to weaken after initial gains earlier in the week. Currency expert at Frankfurt’s Commerzbank, Ulrich Leuchtmann, conveyed that the manner in which Jerome Powell, US Federal Reserve Chairman, approached this significant increase could easily be interpreted as welcoming high inflation rates without feeling the need to make policies any stricter.

Before ECB’s policy meeting on Thursday, the euro increased above $1.18 in anticipation of the meeting’s results which aimed to help the euro strengthen. The general expectation was that the asset purchase programme (APP), which consists of huge asset purchases, would be ended. Should this happen, KBC Bank strategist Mathias van der Jeugt believed that it would benefit the price of the euro, sending it as high as $1.20 in the near future. And as the meeting neared, the euro already started to rise. However, Leuchtmann’s prediction that the ECB would “water it down” (rather than turn it into a great end to the stimulus policies) was correct, and after the meeting the euro began to drop. For forex traders, whether dealing with low risk entries or gunning for higher risks, these uncertainties can affect investments, but shouldn’t pose too large a threat for the time being.

The US Fed admitted they would continue with above target rates for the next several years, made clear by the second increase in overnight borrowing costs for the second time this year, and with two more predicted to follow. The pledge they once made to accommodate the economy with low rates has now been brought to an end. The dollar index subsequently dropped 0.4% to 93.270, making it the lowest it had been all week.

The meeting between US President Donald Trump and North Korean Leader Kim Jong Un also took its toll on both the US dollar and its relationship to the yuan and Chinese trading markets. The meeting aimed to discuss the activation of increased tariffs on the billions of dollars of Chinese goods being traded. The relations between the US and China especially influenced the dollar against the yen. The meeting approached the tariffs charged on Chinese goods. Before the meeting, the dollar had risen to 110.85 yen making it the highest it had been in three weeks, but after the meeting with top trade advisors it dropped 0.4% to 109.92.

In other news, the yuan dropped to 6.393 against the dollar after the People’s Bank of China announced that they would not change the borrowing costs for interbank loans. This decision was unexpected and dodged the US tariff rate increase.

After the US Fed announced their rate increase, and hinted that the Australian central bank was not likely to follow suit any time soon, the Australian dollar dropped by 0.3% to $0.7556.

The effects that all these fluctuations will have on FX trading will have to be monitored closely as changes continue to occur between the dollar and euro. The wisest move for traders would be to revise trading strategies, follow the news and online advice, and trade carefully and accordingly as events unfold.