Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Financial

Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Categorized | Currencies, Economy

Euro tumbles on ECB rate cut speculation


Posted on October 31, 2013

A tram passes the giant Euro symbol outside the headquarters of the European Central Bank (ECB)©Getty

The euro fell sharply on Thursday after data showing eurozone inflation at its weakest in nearly 4 years prompted speculation that the European Central Bank could soon take action to avert the risk of Japan-style deflation.

The euro has been one of the strongest major currencies this year, supported by a hefty current account surplus, a resumption of capital inflows to equity markets and a broader perception that its long-term survival is no longer in doubt.

    It has also regained a role as a haven currency as uncertainty over US monetary policy and aggressive monetary easing in Japan reduced the attractions of the dollar and yen.

    Even after Thursday’s fall of 1 per cent to $1.3595 against the dollar, it has gained almost 5 per cent against the US currency in the past year – a move that is proving painful for many eurozone exporters.

    However, October’s inflation print of 0.7 per cent, coupled with data showing unemployment stuck at a record high, will increase the pressure on ECB policy makers to discuss a further cut in interest rates when they meet next week.

    Although they have said they do not see the euro’s recent appreciation as a concern, the currency’s strength is a further factor that will limit inflation.

    “We do not expect a monetary policy move at the next meeting as it can be argued that the internal devaluation is part of the necessary process of correction of imbalances . . . Nonetheless, it is to be expected that President Mario Draghi will in all likelihood be grilled on the deflation threats at the next press conference,” wrote François Cabau, economist at Barclays.

    “The print will fuel expectations of a rate cut next week and a dovish statement,” said Valentin Marinov, strategist at Citi, adding: “The ECB president could highlight the link between currency appreciation and eurozone disinflation.”

    Many analysts think the euro is now vulnerable to a change in market sentiment, since currency speculators had placed heavy bets on its rise that they might now unwind.

    Steven Saywell, strategist at BNP Paribas, argues that the market had underpriced the risk of the ECB cutting rates in December, leaving “substantial scope” for the euro to weaken over the next few weeks.

    Ian Stannard, analyst at Morgan Stanley, said portfolio inflows that had supported the single currency in recent months could also slacken, since valuations of European equities no longer looked as attractive.

    Mr Marinov argued that the effect of a strong euro on corporate earnings could itself deter future demand for European assets, saying: “Given the importance of equity inflows for the euro outperformance, we suspect that evidence that these flows are abating could add to the headwinds for the single currency across the board.”

    The euro also weakened sharply against sterling, falling 1.1 per cent to trade at £0.8473.