European Major Currencies Strengthen as USD Softens

Market Reviews

The euro recovers today, together with Swiss franc and British pound. European major currencies remain the strongest ones. Today’s data showed, that Eurozone CPI was finalized at 1.9% yoy in November, down from 2.2% yoy in October. It is still notable improvement from 1.5% yoy in November 2017. Core CPI was finalized at 1.0% yoy.

US dollar weakens today, as investors are cautious ahead of FOMC rate decision, statement, and economic projections to be released on Wednesday. The Fed begins its two-day meeting on Tuesday and is expected to raise interest rates for the fourth time in 2018. All attention will be focused on signals about the pace of further tightening and the Fed's sense of how the economy holds in terms of the US-China trade conflict and the volatility of the global financial market.

The dollar was also pressured by weaker than expected manufacturing data. US Empire State manufacturing index fell sharply to 10.9 in December, down from 23.3 in November and missed expectation of 20.1. That’s also the lowest level since May 2017.

On stock markets, FTSE lost 0.69%, DAX fell 0.94% and CAC dropped 0.85%. Earlier in Asia, Nikkei closed up 0.62%, Singapore Strait Times added 1.21%. But Hong Kong HSI dropped 0.03% while China Shanghai SSE gained 0.16%.

The Italian coalition government agreed on the "numbers and content" of the budget, which it will offer to Brussels to avoid disciplinary measures in connection with plans to increase spending on the deficit next year. The leaders of the coalition government sounded optimistic that they would eventually avoid disciplinary actions by the EU over its 2019 budget.

IMF mission chief for Japan Paul Cashin said that the Bank of Japan must retain its massive incentive, despite rising costs, including the burden on regional banks of almost zero rates. Meanwhile, IMF Director of Asia and Pacific department Changyong Rhee indicated that US-China trade war is already having an impact on business confidence and investment in Asia. In particular, he said Japan and South Korea could be among the those hardest hit due to reliance on exports to China.