Worries over central bank meetings send euro down

Chris Lee

European Central BankEuro traders revealed signs of worry on Monday as several major global central banks prepared to meet to discuss potentially significant interest rate changes.

The euro is just one currency which is facing a major headache this week in the form of a central bank meeting. The European Central Bank will meet on Thursday, at which policy makers are expected to outline a plan of monetary easing.

Traders were shedding their euro assets wherever they could. The euro dropped in the EUR/USD pair to $1.12, although it did previously reach as high as $1.1208 when the week’s trading first kicked off.

Further central bank meetings are due to take place next week. The Federal Reserve in the US will meet in the middle of the week to make its key decision, and there is a strong expectation that the world’s largest economy could well be in for an interest rate cut.

While perceptions of whether or not a cut will occur have changed in recent weeks depending on the dominant news of the day, such as which prominent central banker was speaking that day and what they said, there is now a broad consensus that a rate cut is pretty much guaranteed. What remains unclear is the extent to which the Fed will cut rates.

It is understood that some markets are now predicting that the chances of a rate cut of 50 basis points, which is equal to 0.5%, is 18.5%. At some points last week, the prediction was 71%.

The Bank of Japan is also meeting next week to discuss its approach to interest rates.

The USD/JPY pair saw a rise, with the dollar heading up by a fifth of a percentage point. It reached 107.91 at one stage.

The dollar index, which assesses the performance of the greenback in direct comparison to several other major currencies from across the globe, showed a modest rise of 0.1% – reaching 97.199 at one stage.

Despite the importance of the upcoming decisions of central bankers, it is believed by analysts that the strong performance of the US dollar over the course of the day was in fact more to do with geopolitical factors instead – such as Iran-related tensions in the Middle East.

The other major stumbling block for investors to navigate this week will be a change of Prime Minister in the UK.

Theresa May, who announced her resignation recently after she failed to secure a Brexit deal, will leave office on Wednesday.

Her successor as leader of the Conservative Party and therefore as British Prime Minister will be announced on Tuesday. It will either be Boris Johnson, who has promised to take Britain out of the bloc by October 31st whether a deal is in place or not, or Jeremy Hunt, whose position on Brexit is believed to be slightly less hard line.

The pound dropped by a fifth of a percentage point in the GBP/USD pair over the course of the day and went down to $1.2483 at one stage.

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Chris Lee
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