The greenback came under renewed selling against the euro, falling to 1.5946, just shy of its all-time lows at 1.5978. Amid a dearth of economic data at the start of the week, markets focused on comments from central bank officials. Hawkish commentary from ECB officials highlighted the differences in policy stances between the ECB, the FOMC and BoE, with the Eurozone economy exhibiting greater resilience to the global economic downturn.
The economic calendar picks up on Tuesday, with the Bank of Canada scheduled to announce its policy decision at 9:00 AM and is seen cutting interest rates by 50-basis points to 3%. Meanwhile, US reports slated for release will see March existing home sales and the April Richmond Fed survey. Existing home sales in March are expected to decline to 4.92 million units, down from February at 5.03 million units.
Euro Buoyed on Hawkish Comments
A barrage of ECB officials reiterated the Bank's tightening bias in policy, with the comments echoing a similar tone on inflation. ECB Bank President Trichet said that anchoring inflation expectations was the governing council's top priority. He added that future risks to banks mainly relate to adverse credit cycle developments and disorderly unwinding of global imbalances. The ECB's Weber said that Eurozone inflation was well about the Bank's tolerance threshold and will assess in the coming weeks whether current interest rates are still appropriate. He said the ECB would actively and decisively combat risk of widespread second-round effects and that decisive action on price stability is seen as the best contribution to helping growth. Further, he added there are strong upward risks to prices in the medium-term. Meanwhile, Governing Council member Noyer said that inflation needed to be brought down as soon as possible and Papademos added that there should be no doubt of the Bank's primary objective.
Eurozone economic reports this week include April manufacturing and non-manufacturing PMI, Germany's PMI, Eurozone current account balance, and Germany's April Ifo index. While the risk for an ECB policy move remains to the upside, we look for the Bank to leave policy unchanged for the remainder of this year. Nonetheless, given the easing biases from both the FOMC and ECB, we expect the euro will continue to outperform and test new all-time highs against the dollar and sterling.