We enter the last trading day of the quarter and also half year end. This creates some risk of greater volatility as bigger players square positions into month end and also from hedge adjustments from the benchmarked community. Fittingly, the dollar index is virtually unchanged from its closing level of last year, both reflecting the quashing of expectations for a period of dollar strength and the lack of volatility that has beset FX markets over the past few months. For a more detailed review of the year so far, see our blog “The year so far” and subsequent ones this week detailing our outlook for major currencies for the remainder of the year.
There is a reasonable focus on the ECB this week, with the policy meeting on Thursday and inflation data today. The latter is seen steady at 0.5%, but the real issue is the low and also negative inflation rates being seen in the Eurozone periphery. Ironically, this is part of the cure to the rise in prices and loss of competitiveness from years of above average inflation, but for now it’s proving to be a painful one. We don’t expect to see further policy announcementsfrom the ECB this week, but the market will be keenly listening for further hints of possible asset purchases.
So far, we are seeing a stronger dollar at the start of the European session, the Aussie and sterling taking more of the selling pressure. Further ahead, sterling still looks the more interesting major currency for the second half of the year, but the stronger dollar remains across this and other majors.