Uncertainty about European Central Bank meeting steadies gold but stronger dollar applies pressure

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Uncertainty about European Central Bank meeting steadies gold but stronger dollar applies pressure

Unilateral decisions on trade policy are unsafe and disputes should be settled using global bodies, European Central Bank President Mario Draghi said on Thursday, in the wake of USA plans to impose tariffs on imports of steel and aluminium. The euro trade-weighted index this week hit its highest since September 2014.

Most euro zone government bond yields fell 2-5 basis points, though the yield on Germany's 10-year government bond, the benchmark for the region, rose off session lows of 0.647 percent to trade at 0.65 percent by 1700 GMT - more or less flat on the day.

Relative calm returned to global markets on Thursday, as traders took a brief break from worrying about a global trade war and focused back on how fast the European Central Bank will end its 2.5 trillion euro stimulus program.

"There is a lot of position squaring ahead of the European Central Bank", said Manuel Oliveri, FX Strategist at Credit Agricole.

A final decision on the tariffs is expected soon.

'Easing bias may be gone, but European Central Bank balance sheet won't be reducing in size anytime soon with reinvestments for extended period, tweeted market analyst Michael Hewson at CMC Markets.

The Mexican peso last stood at 18.6900 per dollar, bouncing back from Wednesday's low of 18.90 while the Canadian dollar changed hands at C$1.2888 to the US unit, off its eight-month low of C$1.3002 hit earlier this week. The ECB now projects annual real GDP growth of 2.4% in 2018, 1.9% in 2019 and 1.7% in 2020.

Stock markets continued their recent rollercoaster ride yesterday with European markets shrugging off the departure of Gary Cohn, President Trump's chief economic advisor, despite the fact that it would appear to make the prospect of tariffs nearly inevitable.

GBP  USD chart
GBP USD chart

Markets interpreted the message as dovish as Draghi elaborated on the risks to the outlook in his press conference.

Last week the S&P 500 fell 1.3% on fears of a global trade war as Trump announced the United States was adopting tariffs of 25% on steel and 10% on aluminium.

Most bond yields across the single currency bloc rose 1-3 basis points, reflecting some caution ahead of closely-watched US monthly jobs data due at 1330 GMT. Trump has long singled out China for being unfair in trade practices, but experts say tariffs would hurt US allies Canada and the European Union far more.

With the dollar rising in London trading on Thursday, the Canadian dollar fell back. This helped boost the Canadian Dollar and Mexican Peso. In France, the Cac 40 rose 1.3 per cent, while the German Dax finished 0.9 per cent higher.

Elsewhere, shares were up 1% in Shanghai and rallied 1.5% in Hong Kong.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc.

Legal Disclaimer: The material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instruments.

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