The Euro’s strength was reversed during this afternoon’s trading session following a strong labour report for the UK and hawkish comments from Janet Yellen. The US Federal Reserve chairlady, who addressed Congress earlier today, stated that the US economy could support further interest rate hikes in her Monetary Policy Report to the Congress:
‘additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2 percent goal’.
UK employment drops to 4.5%
The unemployment rate in the UK now sits at 4.5%, the lowest since 1975 and a workforce of 32 million for the UK. Wage growth also surprised analysts, climbing 0.1% more than anticipated to 2% for the same period. However, whilst inflation sits at 2.9% for the UK this means that wages are still falling.
This latest report has helped to distract people’s attention from comments by Ben Broadbent (Deputy Governor for Monetary Policy at the Bank of England) who yesterday stated that the UK was not in a position to raise interest rates anytime soon.
Janet Yellen also added to the woes of Euro, her hawkish comments meant that 10 year Bonds for Eurozone declined as investors looked to invest in the higher yielding US. I personally believe this to be the main reason for the Euro’s reverse in the afternoon session.
Dovish sentiment from Governor of the Bank of Italy
Furthermore, it seems as though interest rates for the Eurozone and its accompanying monetary policy are set to stay put for the time being. Ignazio Visco, a member of the European Central Bank (ECB) and Governor of the Bank of Italy said that conditions within the financial sector mean that the ECB’s policy is still required to add stimulus to the Eurozone economy.
This could be a reason as to why the Euro’s hard work from this morning was reversed in the afternoon. I personally think that the ECB will have some difficult questions to answer surrounding the interest rate for the Eurozone, which could cause further weakness in the up and coming months.