The main theme was dollar strength in today’s European session. The euro rose early in the session after Germany’s third GDP showed 0.1% growth in the quarter after a 0.2% contraction in the second quarter. The market focus now turns to Thursday’s appearance by European Central Bank President Mario Draghi followed by Friday’s flash Eurozone CPI data.
The euro fell from a session high of 1.2442 to 1.2401 after US GDP data showed the third quarter growth rate was revised up to 3.9%. This was above forecasts as economists had expected growth would be cut to a 3.3% pace. The data could boost market expectations that the Federal Reserve will hike rates by mid-2015.
The dollar rose against the yen after the US GDP data hit a high of 118.28. Earlier in the European session it hit as low as 117.67. The yen was stronger versus the dollar in the Asian session as the Bank of Japan minutes released today indicated a large divergence between BoJ policymakers.
Sterling became volatile during Bank of England Governor Mark Carney’s appearance before the UK Treasury Select Committee today. Carney reiterated that interest rates are likely to go up, and it is a question of timing. Markets still see the Bank in “wait and see” mode and this did not help the pound, which fluctuated during Carney’s testimony and fell from 1.5693 to 1.5647. The main highlight of the week for sterling will be Wednesday’s third quarter GDP release, expected to increase 3.0% year-on-year.
The Australian dollar was one of the worst performers today, extending its decline against the greenback to a 4-year low of 0.8512, from a European session high of 0.8604. This was a result of comments from the Reserve Bank of Australia Deputy Governor Philip Lowe who said that a weaker aussie was helpful and he foresees a further drop over time.
“If the exchange rate is to play its important stabilizing role, it needs to go down when the terms of trade and investment are declining,” Lowe said.