Stunning rally for euro yesterday

11 January 2013  •  Source: Nawaz Ali, Western Union Business Solutions

The euro produced a stunning rally yesterday after European Central Bank President, Mario Draghi, unexpectedly said little to suggest that euro zone policymakers are moving towards an interest rate cut after the ECB announced no changes to its monetary policy on Thursday.

Draghi also sounded somewhat optimistic about the region’s prospects despite the 17-nation economy being stuck in recession which seemingly gave traders a clear buy signal for the euro, sending the single currency soaring against the British pound, yen and US dollar.

The euro’s sharp gains compounded the yen’s troubles, with the Japanese currency falling to 1½-year lows against both the pound and euro last night, after Japan reported a disappointing current account deficit and the Japanese government unveiled a new fiscal stimulus plan to help revive its faltering economy.

The pound saw little reaction to the Bank of England’s monetary policy announcement yesterday; but despite dropping against a broadly stronger euro, cable has managed to open at one-week highs this morning. Sterling’s ability to hold on to those gains, and resist an advancing euro, should be tested by this morning’s UK industrial and manufacturing output data.

Markets will also examine trade data from the US later today, although reaction to yesterday’s surprise ECB announcement appears likely to dominate trading heading into the weekend.

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