Stocks and core bond yields – with particular underperformance of the German Bund vs. US Treasuries – declined as negative headlines about the coronavirus kept dominating the screens (a first case was detected in Singapore). EUR/USD traded a tad lower vs. yesterday’s close going into the first ECB meeting of 2020. The statement hasn’t changed materially but one added sentence caught market’s and our eye: there are signs of a moderate increase in underlying inflation. It caused a minor but only temporary uptick in (German) yields and the euro though. During a-not-so-exciting press conference, questions to Lagarde were the obvious ones. About the Riksbank’s move to leave the era of negative interest rates, she suggested one should not draw any conclusions what it could mean for the ECB. Lagarde hailed the US/Sino agreement which in her view has led to less uncertainty and caused risks to be less skewed to the downside. There was a lot to do about the (intention to) incorporate climate change in monetary policy as part of the strategic review. However, Lagarde answered without giving any concrete details. A document published after the conference revealed nothing more than some generalities: the review will encompass the quantitative formulation of price stability, the current economic and monetary analyses (one of which to be abandoned?!), communication practices and, last but not least, the monetary policy toolkit. The latter is of particular interest given Lagarde’s comment about growth. She said that if growth did not pick up, the ECB would have to decide “on which part of the yield curve we want to operate and that determines the tool”. Is the central bank considering a kind of yield curve control? Anyway, the market reaction to the meeting was fairly muted. German (but also US) yields lose some 4 bps, half of which already occurred at opening. The euro fell in lockstep. The decline is rather limited but does push EUR/USD near important support at 1.1066. Tomorrow’s PMI’s are decisive.

The recent sterling rebound, which accelerated after a huge upside surprise in yesterday’s CBI data, took a breather. An empty eco calendar today and key PMI figures due tomorrow are at least part of the explanation. The high profile business confidence indicator will probably tip the scale in either a status quo or rate cut by the Bank of England next week. Investors do not want to be wrongfooted, resulting in a directionless trading session. EUR/GBP hovered sideways around opening levels of about 0.844. Cable marginally declined to 1.312, down from 1.314 at opening.

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Swiss National Bank President Jordan said that “at the moment” there’s no need introduce a new cap at the Swiss franc to tackle its strength. “We believe the system in place (selective interventions) is the right one”. He added there’s room for additional cost, but already at -0.75% the SNB is well aware of side-effects. Recently, pressure has been building on CHF, pushing EUR/CHF below 1.7050 for the first time since 2017.

The Norges Bank kept its policy rate as expected unchanged at 1.5%, where the central bank believes it will remain in the coming period. The risk of a sharp downturn in the global economy appears to have receded somewhat since autumn while underlying inflation is close to the inflation target. Eco data support the view that the economy is probably near a cyclical peak. EUR/NOK treads water just south of 10.

EUR/HUF rose this morning from 336 to 337.50, a fresh record low. There was no country-specific news with most regional currencies losing some ground during this morning’s risk aversion. The Hungarian central bank meets next week. The MNB has an very accommodative monetary policy stance. Through a weaker currency, pressure will be building to scale back some of the most extraordinary, liquidity-related measures. Earlier this week, the MNB already experienced by not providing additional liquidity through FX swaps.


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