European Central Bank tries to restrain the EUR/USD, but it won’t work
By Yann Quelenn
The Euro is definitely on its way up against the US dollar. It already has reached its highest point in two years, at 1.16 EUR/USD.
At yesterday’s Monetary Policy meeting of the European Central Bank, President Mario Draghi tried to talk the Euro down, even going so far as to suggest that ECB’s quantitative easing (buying of bonds) could be increased and prolonged. But the currency markets were not buying Draghi’s line, and neither are we. Available bonds are too scarce, and turn to a taper is too clear to disguise. Draghi was simply trying to devalue the euro.
Unsurprisingly, the ECB held its rates steady yesterday at 0% for the 17th consecutive month.
At its next meeting, in September, the ECB will discuss bond purchases again. However, the Bank is obliged not to change its QE program at least until December.
Buy high-beta emerging-market currencies such as Indonesian rupiah
By Peter Rosenstreich
Now is a good time to go long on emerging-market currencies such as the Indonesian rupiah, as their economies remain strong and the US Federal Reserve dithers on money tightening.
The Bank of Indonesia yesterday held its 7-day repo rate unchanged at 4.75%. This was expected, as the central bank tries to balance economic growth and financial vigilance. The Bank expects economic growth to decelerate but stay robust on the back of export expansion. 2017 GDP growth is projected at 5.0-5.4%. Inflation is remaining well within the 2017 target of 4%. Capital inflows are stable.