Wed, Feb 01, 2023 @ 10:03 GMT
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Euro Rallies Despite Dovish Draghi; Sterling Weakens Despite Upbeat Retail Sales

The euro rallied to a near 14-month high against the dollar during the European session following ECB President Mario Draghi’s speech at a news conference today. Sterling was briefly lifted against the US currency, but gave up on gains and was down on the day as the US session started. During the end of the session, forex markets reacted significantly on the back of just released news regarding Trump’s links with Russia. The dollar index was down 0.60% at 94.22.

The euro had initially slipped to a two-day low against the greenback following the release of the ECB policy decision, which was kept the same. However, the eurozone currency rose towards a 14-month peak against the dollar after ECB President Mario Draghi said policymakers would discuss possible changes to its bond-buying scheme in the autumn. While Draghi said no date had been set for discussing any changes to the program, investors believed discussions in the autumn would lead to monetary tightening next year. The euro rose to as high as $1.1575 as Draghi spoke, near the 14-month highs of $1.1583 from earlier in the week and being up almost half a percent on the day. The next key event euro traders will be closely monitoring in hope for more clues is the Fed symposium in Jackson Hole (late August) at which Mario Draghi will speak this year.

The euro rallied further on the back of news that the special council is "examining a broad range of transactions involving Trump’s businesses". Dollar/yen fell to 111.78 while euro/dollar rose to above the 1.16 level to last trade at 1.1630, its 23-month high, as the US session was underway.

Warm weather lured UK shoppers to splash during June, mostly on clothing that led the retail sales higher. The figure for June beat expectations to rise 0.6% month-on-month, above the 0.2% forecasted expansion and the 1.2% decline recorded in the previous month. The year-on-year number was also higher than expected and increased 2.9% versus the forecasted 2.5%. However, an official comment from UK’s Trade Minister Liam Fox saying that the country could get by without a Brexit trade deal casted a cloud over the pound. This scenario, if true, could deter business activity as predicted by economists. Sterling rose against the dollar after the upbeat UK retail sales report today. Pound/dollar rose to 1.3017 immediately post the release, though it lost ground later in the session to last trade at 1.2991.

The two important economic data releases out of the US gave a mixed picture of the economy. The figure for initial jobless claims portrayed a positive image by coming in below expectations. The number of people seeking unemployment benefits fell to 233K for the week ending July 15, the lowest level in nearly five months. The figure is below the upwardly revised number for the prior week (248K). However, the Philadelphia Fed Manufacturing index for July disappointed by falling to 19.5, the lowest level since November 2016 and far below the expected level of 24 and the prior month’s 27.6. The dollar rose slightly immediately after the data release, however it fell soon after. The US currency was last trading at 111.78 yen as the US session started.

Oil prices continued gaining during the European session with Brent reaching an intra-day high of $50.19 a barrel, above the key $50 level. Brent was last trading just another that level, while WTI was at $47.44, up 0.7% on the day.

Even though gold prices rose in the pre-US session on dollar weakness, it wasn’t enough to offset earlier losses. The precious metal was last trading at $1,238.58 an ounce.
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