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ECB drives euro down

Published Wednesday, May 20th, 2015

Delayed news that a member of the ECB’s executive, Benoit Coeure, had delivered a speech in London on Monday evening indicating a speeding up or advancement in the central bank’s bond-buying programme dominated yesterday’s financial headlines. It sent the euro tumbling below $1.12 and gave European shares a boost. It was further evidence that the ECB’s version of QE is as much a currency play as anything else.

This news plus a 20% rise in US housing starts sent the dollar higher which in turn sent commodity prices lower. German investor sentiment has suffered an unexpectedly large tumble. Perhaps this is because the survey was taken when the euro had strengthened or perhaps it reflects investors’ view that whatever the Greek outcome it will be negative for the eurozone. Exit is a step into the unknown, a further bailout a denial of the reality that Greece is bankrupt and debt deferral or forgiveness contagious and politically unpopular especially when given to a country run by a government committed to extravagance rather than austerity.

A stronger dollar helped oil prices move lower with both Brent and WTI losing $2.25 bbl to close at $64.02 and $57.59. Monday’s news that Saudi exports hit their highest level since 2005 at 7.90 mbpd may also have brought out sellers already reflecting on the IEA’s latest report that non-OPEC supply outside of the US has been rising. The IEA’s comments were a reminder of the dangers of “drilling rig blindness” and paying too much attention to the behaviour of US frackers. It is easy to forget amidst all the heat fracking generates that they only produce 6% of global supply.

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Posted by David Hufton