Dollar Drops Against Euro After Comments From Mario Draghi

The dollar is losing ground against its major European rivals Tuesday afternoon, but is up slightly against the Japanese Yen. On a light day for economic news, central banks have been in focus today.

Chair Janet Yellen discussed global economic issues in London, but demurred on whether another rate hike is imminent.

Meanwhile, Vice Chair Stanley Fischer said that risk appetite is picking up, reflected by rising equities.

“There is no doubt the soundness and resilience of our financial system has improved since the 2007-09 crisis. We have a better capitalized and more liquid banking system, less run-prone money markets, and more robust resolution mechanisms for large financial institutions. However, it would be foolish to think we have eliminated all risks,” Fischer said.

The European Central Bank will need to be prudent in withdrawing monetary stimulus as that can be done only gradually with the euro area still in need of considerable policy support to bring inflation back to target in a sustainable way, ECB President Mario Draghi said Tuesday.

“In the current context where global uncertainties remain elevated, there are strong grounds for prudence in the adjustment of monetary policy parameters, even when accompanying the recovery,” Draghi said in a speech at an ECB forum in Sintra, Portugal.

“Any adjustments to our stance have to be made gradually, and only when the improving dynamics that justify them appear sufficiently secure.”
The dollar has dropped to over a 9-month low of $1.1335 against the Euro Tuesday afternoon, from an early high of $1.1179.

Consumer confidence in the U.S. unexpectedly improved in the month of June, according to a report released by the Conference Board on Tuesday. The Conference Board said its consumer confidence index rose to 118.9 in June from a downwardly revised 117.6 in May.

The increase came as a surprise to economists, who had expected the index to drop to 116.7 from the 117.9 originally reported for the previous month.

Italy’s consumer confidence improved more-than-expected in June, while business confidence rose marginally, survey data from the statistical office Istat showed Tuesday. The consumer confidence index climbed to 106.4 in June from 105.4 in May. Economists had expected the index to increase to 105.8.

The Bank of England plans to raise capital requirement of lenders amid consumer credit growth.

The Financial Policy Committee would lift the countercyclical capital buffer to 0.5 percent from zero percent, with effect from June 2018.

In the absence of any material change in the outlook, the bank expects to lift the rate again to 1 percent at its November 2018 meeting, the bank said in its Financial Stability Report. An increase of 0.5 percent itself lift the capital requirement by GBP 5.7 billion.

The buck has fallen to a 1-week low of $1.28 against the pound sterling Tuesday afternoon, from an early high of $1.2715.

UK consumer confidence deteriorated notably in the wake of hung parliament, survey results from YouGov and the Centre for Economics and Business Research showed Tuesday. The overall consumer sentiment index dropped to 106.9 in June, its second-lowest level since the summer of 2013.

The greenback climbed to over a 1-month high of Y112.466 against the Japanese Yen Tuesday, but has since eased back to around Y112.085.

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