Euro Rises First Week in Three on ECB Rate Bets
The euro fell Friday, trimming its weekly advance, yet the options outlook remained bullish as traders continued to reduce their bets on a final European Central Bank interest-rate cut this year.
EUR/USD slips 0.1% to 1.1734, still up 0.9% on a weekly basis; in options, topside premium stands between 35-65 basis points across the curve.
Swaps imply just over a 50% chance of another quarter-point reduction by the end of the year, having fully priced such an outcome earlier this week.
Banks including Goldman Sachs Group Inc., Commerzbank AG and Royal Bank of Canada have scrapped calls for one more interest rate reduction by the ECB; there’s little reason to lower interest rates further unless the economy suffers a major blow, according to Governing Council member Martins Kazaks.
Euro one-week implied volatility rises as much as 124bps to 8.67%, its highest level since July 17; realized vol trails implied by 270bps, suggesting options are most overpriced since mid-January.
Traders now focus on key US data next week including GDP and payrolls, as well as the next Fed meeting; US durable goods due later Friday.
The dollar rises as investors take stock of President Donald Trump’s comments that firing Federal Reserve Chairman Jerome Powell wasn’t necessary, easing some worries around the central bank’s independence.
The Bloomberg Dollar Spot Index is up by 0.3% though it remains on track for a 0.6% weekly decline.
GBP/USD down a second day, drops 0.4% to 1.3451; UK retail sales barely grew in the second quarter even as sizzling temperatures spurred spending in June.
EUR/GBP up 0.3% to 0.8727, highest since April 11; short-gamma desks seen chasing the move above 0.8700, two Europe-based traders say.
USD/JPY gains 0.6% to 147.90 after data showed Tokyo.
inflation slowed for a second month; Bank of Japan officials see the possibility of mulling another interest rate hike this year after the US and Japan struck a trade deal this week, according to people familiar with the matter.
EUR/JPY up a fourth day, rallies by 0.5% to fresh one-year high at 173.61
Source : Bloomberg
