Comments from the head of the European Central Bank kept alive the expectations of some form of policy shift at next week’s meeting as the central bank is waiting to assess the new staff projections for growth and inflation. Economic data continues to reinforce the view that growth in the euro area remains protracted, while inflation expectations are becoming unstable. ECB’s Mario Draghi is expected to speak again, but at this point there is little he could say that investors have not heard before.
Sterling
The head of the UK central bank is scheduled to speak as there is a real lack of UK data this week, which ultimately risks damaging sterling. Comments from a dovish-sounding Mark Carney could limit the currencies upside, particularly if comments collide with positive US data. Sterling continues to trade near 17-month highs against the euro. Thus far politics has had little impact on the currency, but PM David Cameron has been trying to find EU support for acknowledging the win seen by nationalistic parties at this weekend’s EU parliamentary election. He has asked EU leaders not to reinstate Jean-Claude Juncker as European Commission president.
US dollar
The US comes back from a long holiday weekend to face a string of economic figures. Durable goods figures are seen down slightly, but after a strong prior month release should not prove to be too damaging for the dollar. Rather attention swings back to housing figures after last week’s new and existing home sales began to show signs of a pick-up in the housing market. Consumer confidence figures will be released and improving figures in the jobs market could ultimately support the release and help lift the US dollar. Consumer demand continues to make up two-thirds of the economy and confidence is seen as a leading indicator for demand.
Japanese yen
The Japanese yen is facing some selling pressure as local equity markets touched seven-week highs. The currency may have also felt some selling pressure on the back of economic data showing net external assets increased to record levels at the end of last year, putting Japan as the world’s biggest creditor nation for the 23rd consecutive year. Some geopolitical attention could be on the horizon, however, with comments from PM Shinzo Abe pointing at Japan’s readiness to support Vietnam in its territorial dispute with China. The yen is considered a safe haven currency and therefore could benefit on signs of Japanese involvement.