European Central Bank minutes show optimism - EUR/USD breaks above 1.20

Alfred Osborne
January 13, 2018

The Australian and New Zealand Dollars corrected lower in Asia Pacific trade.

Sterling was up a quarter of a percent against the dollar at $1.3539.

Palladium was 0.4pc lower at $1,078.72, down from a record high of $1,111.40 on Tuesday.

Inflation has remained muted, with the European Central Bank forecasting that price growth will only reach 1.7 per cent by 2020 - nearly 30 basis points below its target level.

Hit by the strong euro, the dollar index - which measures the USA currency against a basket of six major rivals - slipped 0.6 percent to its weakest in four months, at 91.329.

European bond yields were also driven higher by minutes on Thursday of the ECB's December meeting that showed it thinks it should revisit its communication stance in early 2018.

US government debt yields slipped Thursday but held near highs after the European Central Bank said it may adjust its guidance to investors given the strength in the European economy. Chances of an interest rate hike next week, which had climbed on recent strong employment figures, have slipped to around 70 percent from almost 90 percent on Monday, data from the overnight index swaps market showed.

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"If it can hold above here going into the weekend then there's a high probability of further gains to come which crucially means a continuation in the USA dollar downtrend". The Canadian dollar was last trading flat at C$1.2525 to the greenback.

AUD/USD is supported around 0.7832 levels and now trading at 0.7889 levels.

Brent crude futures settled 6 cents higher at $69.26, after hitting $70.05 during the session, its highest level since November 2014.

A lull in noteworthy European economic data will see investors looking ahead as December's US CPI and retail sales figures cross the wires. Later on Friday, the United States is expected to release its December inflation data, which the market will use to form its rate hike forecasts. The euro jumped 0.75% on the news.

Germany's DAX 30 index declined 0.6% to end at 13,202.90, and France's CAC 40 turned lower, finishing down by 0.3% at 5,488.55. Japan's Nikkei dipped 0.1%.

MARKET CALM: Global equity markets settled after some turmoil earlier in the week sparked by a news report that China might slow or halt purchases of U.S. Treasurys, which Beijing later challenged.

Rising bond yields and some disappointing corporate earnings also weighed on markets. In precious metals, gold edged up 0.4% without any major news behind the move, likely boosted by the softer USA dollar. The increase was the biggest single-day percentage gain against eh stronger dollar for over two-month. The all-important 10-year yield hit its highest level since March on Tuesday.

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