The month of August largely passed off as a non-event with most of the markets trading flat. The US dollar continued to weaken during the month as investor sentiment continued to drop.
The weakness in the greenback was spurred by both economic and political developments. North Korea stood out on the international scene as the nation first started with threats and soon followed by test firing a missile in the sea, close to Japan. Investor risk appetite briefly waned, sparking a flight to safety.
The Jackson Hole symposium was a non-event as the Fed Chair Janet Yellen’s speech did not make any big references to the US monetary policy.
On the other hand, her counterpart, Draghi briefly acknowledged the strength of the eurozone’s economic recovery. Although Draghi did not make any specific mentions to monetary policy, investors took his cues and continued to bid up the euro in hopes that the ECB will tighten its monetary policy soon.
FX Monthly Performance - August 2017
The month ahead: September 2017
The month of September will be interesting as investors will be looking both to the US Federal Reserve and the ECB’s monetary policy decisions. The ECB is expected to announce a tapering to its QE while the Fed is expected to begin unwinding its balance sheet. On the political front, Germany will be holding its general election later in the month.
ECB Monetary policy – Time for another taper (Sep 7th)
Since July, after ECB president Mario Draghi turned hawkish about the Eurozone economy and monetary policy, investors have been steadily pushing the common currency higher. Last week, the euro briefly touched $1.20 levels in what has become the best performing currency this year.
Understandably, the EURUSD parity talks have been replaced with optimism with major financial institutions now upgrading their views on the euro. $1.20 – $1.25 seems to be the common theme in the markets when it comes to the common currency in a coming couple of quarters.
In this aspect, the European Central Bank’s monetary policy meeting on 7 September Thursday will be an important milestone for the eurozone’s monetary policy. The ECB president Draghi is expected to announce another round of tapering at this month’s meeting. The QE is however expected to run its course through the end of December this year.
The focus will turn to the forward guidance in the coming months as the ECB will acknowledge the developments in the eurozone’s economy. Inflation continues to remain a sore point, but so far there has been evidence of headline inflation slowly pushing higher. The ECB already revealed that the governing council discussed on the changing the wording in the monetary policy statement in July but refrained from doing so in order not to send the wrong signals to the market.
Read more: https://www.orbex.com/blog/2017/09/fx-markets-monthly-outlook-september-2017