European Central Bank’s Meeting Sparks Cautious Optimism, Dollar Benefits
Investors have adopted a cautious and also optimistic outlook ahead of the European Central Bank’s (ECB) meeting that was scheduled to take place on September 12.
Analysts expect the ECB to announce a negative interest rate to be one of the highlights of the ECB meeting. The meeting is critical in setting a precedent for the interest rate decisions that by the Bank of Japan and the U.S. Federal Reserve. Although the meetings and interest rate decisions have encouraged traders to be optimistic, they are also characterized by a cautious mood by traders.
The cautiously optimistic mood by traders has surprisingly benefited the US dollar while also taking away the advantage from the safe havens such as the Japanese Yen. This contributed to the dollar's strength on Wednesday. The mood was mainly caused by the volatile political situations in major markets, such as the trade war between the U.S. and China, as well as the Brexit situation in the U.K.
The impact of the cautiously optimistic mood is evident in the EUR/USD currency pair chart performance, which indicates a strong bearish performance on Wednesday. The currency pair's exchange rate traded as high as 1.1055 on Wednesday morning before jumping on the downtrend. It reached its lowest point in the day at 1.0985 before making an attempt at recovery. The EUR/USD exchange rate traded at 1.1008 at the time of this press.
The anticipation for the ECB meeting has also affected the Japanese Yen’s performance which indicated a major change overnight after it reached 107.65 against the U.S. dollar. This is the lowest level that the Yen has experienced since early last month.
There are still some major concerns in the market
Analysts expect the ECB to deliver positive news, but there is no denying that talks of a recession have also been increasing. For example, the inversion of the bond yield curve in the U.S. sparked concerns over the increased likelihood of a recession. Historical data indicates that the yield curve inverts just before the market enters a recession and so it is used as a precursor on an indicator that the market is headed for a recession.
The Sino-U.S trade dispute has also been a major source of concerns for investors. The trade dispute between the two countries has had far-reaching consequences that include slowing down the global economy and also hurting the economies of the two countries.
The Brexit situation is also one of the weighty issues that have received global attention and subsequently affected the Euro and the Sterling Pound. The two currencies have experienced significant declines against the US dollar over the past few weeks as the markets became highly volatile.
Central Banks have also been facing a lot of pressure to adjust their policies in an effort to help their respective markets to neutralize the effects of the economic uncertainties. At the same time, they have to make decisions that will be good and favorable to their economies. To this end, some market experts are concerned that slashing interest rates might not be the best idea.