The U.S. dollar was slightly stronger overnight as traders awaited decisions from the Bank of Japan and the European Central Bank.
Overview
The ECB was a slight surprise, opting to raise rates by 50 basis points instead of 25 bps as inflation continues to grip the region. Domestic developments will take a backseat to central bank action abroad today, but there are some data points worth mentioning. U.S. July Philadelphia Fed factory index fell to -12.3 versus expectations of -3.3. A separate report showed weekly jobless claims rose 7K last week to 249K. Continuing claims also ticked higher. Tomorrow’s S&P service and manufacturing PMI will round out the economic docket for the week. The U.S. Federal Reserve will make its interest rate decision next Wednesday. We expect a 75 basis point hike, but a full percent hike is not out of the question.
What to Watch Today…
- No major economic events are scheduled for today
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EUR
The European Central Bank made waves this morning after they surprised some in the market with a 50-basis point interest rate hike. The move was the first hike in eleven years. The decision was not a total surprise, especially after some comments from policymakers earlier this week.
The Euro surged over half a percent in the moments following the decision. The more aggressive decision by the European Central Bank somewhat closes the gap in monetary policy between the ECB and the Fed, which has allowed the Euro to find some relief. European Central Bank President Christine Lagarde will hold a press conference momentarily to explain the decision.
JPY
Unlike its counterparts in Europe, the Bank of Japan left its interest rate unchanged. The decision to hold rates at rock bottom levels highlights the growing differential between the BoJ and western central banks. As a result, the Japanese yen continues to slide against all of its G10 counterparts. Bank of Governor Haruhiko Kuroda said that “we have no intention at all of raising rates under the yield curve control framework.” He continued, “we also have no intention of expanding the 0.25 range on either side of the yield target.” Monetary easing continues.
