Euro volatile

The euro was volatile around yesterday’s ECB meeting and press conference, weakening to $1.11 against the dollar initially but then recovering to an intra-day high of almost $1.12 before “settling” back just below $1.1150, which is pretty much where it was yesterday morning. Meanwhile, sterling’s “Boris Bounce”, which was modest enough in any case, has also proved short-lived, with the pound heading back closer to the 90p level against the single currency and falling to almost $1.24 against the dollar

The ECB left its policy stance unchanged yesterday but signalled strongly that a cut in interest rates is imminent (most likely a reduction in the deposit rate, currently -0.4%, at the September 12th meeting) – indeed ECB sources have since indicated a rate cut in September is a done deal –  and said it is considering “options for the size and composition of potential new net asset purchases” i.e. restarting quantitative easing, or QE

While the ECB is concerned about downside risks to the economic growth outlook in the Euro area, it is very worried about “persistently” below target levels of inflation in the zone. Indeed Mario Draghi was very explicit on this point, saying that “1.6% is the inflation rate that we see in 2021 in our projections. That’s something…we don’t like. And therefore we are determined to act” to bring inflation back up to its target

The EU’s chief Brexit negotiator, Michel Barnier, has said the new UK prime minister, Boris Johnson, of  laying down “unacceptable” terms for talks between the two sides, increasing the risk of a no deal Brexit at the end of October

Data due today include a first estimate of second quarter GDP in the US, with the consensus expecting the pace of growth to have slowed to 1.8% (annualised rate) from 3.1% in the first quarter of the year