Euro slide continues as ECB and US Fed are expected to act in December

Enrique Díaz-Álvarez23/Nov/2015Currency Updates

The Euro resumed its slide last week amid increasingly strong hints that the US Federal Reserve and the European Central Bank will take opposite actions next month. In terms of economic data, sentiment in the Eurozone contrasted the positive data releases in both the US and UK.

The minutes from the October Federal Open Market Committee, published late Wednesday night, offered some temporary relief to the common currency as investors focused more on the expected, very gradual pace of future rate increases than on the increasingly likely fact of a December move by the Fed.

This relative dovishness on the Fed’s part provided an instant boost to risk assets around the world. In particular, commodities and emerging market currencies rallied sharply after weeks of severe losses.

However, the Euro could not sustain its post-FOMC gains and resumed a gradual slide against the Dollar on Friday, on the back of further dovish comments from ECB President Mario Draghi, followed not far behind by Sterling.

Of note is that the GBP/EUR pair continues to trade near highs last seen during the Greek Crisis, whilst EUR/USD is closing in on its yearly low.

Emerging market currencies shone last week after the FOMC minutes. The Brazilian Real, the South African Rand and the Ruble all gained over 3% for the week, as investors were starting to take notice of the very cheap levels on offer in these currencies and the fact that any interest rate rises in the US will be very gradual.

Major currencies in detail:


Macroeconomic data last week out of the UK had mixed implications for monetary policy and hence Sterling.

Early in the week the inflation report came out a bit higher than expected, as the core inflation rate edged higher to 1.1% on the year. This should reassure the Bank of England that tighter employment markets are starting to push inflation back towards its target.

However, weaker October retail sales (the ex-auto fuel annualised growth rate fell to 3% from 5.7% in September) and the much poorer than expected public borrowing data dampened sentiment on Sterling, and the Pound ended the week little changed against the Dollar, though up modestly against the Euro.


Last week, macroeconomic news out of the Eurozone were scarce, and financial markets in general shook off very early in the week any weakness stemming from the Paris attacks.

Therefore, investors focused once again on the relative stances of the ECB and the Fed. The former continues to hint ever more clearly at December action. President Draghi’s speech on Friday, which stated that the ECB would “do what it must” to raise inflation back to target.

Over the weekend other ECB officials, namely Peter Praet and Benoit Coure, sounded even more urgent and worried about sluggish growth and the potential for deflationary expectations in the Eurozone.

This tone in ECB communications gave the Euro a knock on Friday, and the common currency proceeded to give up its post-FOMC gains to end the week down roughly 0.5% against the Greenback.


In the absence of critical macroeconomic releases last week, US markets focused on the release of the FOMC minutes.

The Fed seems to be very intent on transmitting a double message to markets – a December hike is very likely but any further rate increases will be slow. This is in line with our forecasts for a December hike and then a 0.25% increase every quarter or so afterwards.

Fed officials’ communication efforts clearly succeeded on Wednesday, as investors everywhere sent asset prices higher. Although Draghi’s comments sent the Euro lower once again for the week, in trade-weighted terms the Dollar ended the week almost exactly where it had begun, giving up all of its early gains in the hours after the release of the FOMC minutes.

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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.