Forex Update
Currency markets were shocked to life this morning following comments from the ECB’s Yves Mersch, who noted an increase in downside growth risks as well as inflationary pressure in the Eurozone. The ECB’s governing council member said the ECB could ‘look through’ the brief jump in prices, which may indicate a shift away from the central bank’s price vigilance.
The EUR plummeted vs. all major currencies following Mersch’s comments. EUR/USD dropped 1.12% to 1.4638.
The sudden ECB policy shift may be an attempt to curb the EUR’s recent advance, as Mersch warned about the downside risks of a strong EUR. It remains to be seen if his comments are an individual policy shift or if they represent a shake-up for the ECB as a whole.
The USD benefitted from the jailbreak away from the EUR. The USD Index jumped 1% to 76.336 after trading flat for most of the day. The widespread EUR sell-off gave USD/JPY and USD/CHF a boost, which was likely influenced more by the EUR cliff-dive than the carry trade. USD/CAD is up .55% and Cable is flat.