Daily FX Update, 16 February 2016

OVERNIGHT MARKET UPDATE:

·         US – US markets were closed for Presidents’ Day.

·         Euro area – ECB President Draghi reiterated that the Bank is still on target to “review and possibly reconsider the monetary policy stance" at its next meeting on 10 March. "The focus of our deliberations will be twofold. First, we will examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations…Second, in the light of the recent financial turmoil, we will analyse the state of transmission of our monetary impulses by the financial system and in particular by banks. If either of these two factors entail downward risks to price stability, we will not hesitate to act”.  

·         UK – BoE MPC member McCafferty stated that the case for a rate rise is less compelling as upside risks to wages had been pushed out. McCafferty had been the only MPC member to vote for a rise in the bank rate between August 2015 and January 2016 before calling for no change in rates in February. 

·         Currencies – China Renminbi enjoyed its biggest one-day gain in more than a decade as onshore traders returned from the Chinese New Year holiday to supportive comments from the central bank and a declining dollar.

·         Equities – Global equity markets started the week on a positive note. Europe took its lead from the positivity in Asian equities. The Euro Stoxx 50 rose a further 2.8%, buoyed by stronger rises for financials, utilities and consumer discretionary stocks.

·         Rates – The prospect of more ECB policy support contributed to further modest falls in euro area bond yields. Yields on 10 year bunds fell 2 bps to 0.24%. Spreads to bunds narrowed for the euro area periphery, with Italian, Spanish, and Portuguese 10-year yields down. UK 10 year yields rose 2 bps to 1.43%.

·         Energy – Crude oil prices were stronger after another OPEC supply cut rumour. Saudi Arabia’s oil minister Ali al-Naimi plans to meet with his Russian counterpart Alexander Novak in Doha on Tuesday to discuss the oil market.

·         Precious Metals – The rebound in ‘risk’ assets suppressed the demand for gold.