Dovish Comments From ECB President Christine Lagarde Sparked Speculation (EUR/USD, EUR/GBP), PCE Missed Market Expectations (GBP/USD)

Summary:

• USD's decline has been substantially exaggerated.
• Weak UK economic fundamentals once again take center stage.
• The Pound to Dollar exchange rate stayed robust near the week's highs.

EUR left weak against USD

The market is reflecting mixed signals for this currency pair. Italian inflation for October topped forecasts, while Spanish GDP underperformed on all YoY and QoQ indicators, leaving the euro weak against the USD. Italy and France started the morning. German GDP came in at 1.2% and 0.3%, respectively (see economic calendar below), giving the euro a modest boost. The country's strong performance, according to the GDP report, was primarily ascribed to private consumption spending, although I think decreasing energy prices may have had some positive impact on the final result.

Following the decision, ECB President Christine Lagarde's comments sparked speculation that future large rate increases from the bank would not be final. According to her, the rate change will be decided "meeting by meeting." This is true even while inflation is quite high.

If the past 24 hours give any indication, the US Dollar's decline has been substantially exaggerated. During the Asian session, there has been a minor easing.

✕ EUR/USD Price Chart

Euro heavily sold in the wake of ECB announcement

The market is reflecting bearish signals for this currency pair. Although the Pound to Euro exchange rate has recovered from September's losses, Rabobank estimates indicate that as weak UK economic fundamentals once again take center stage in the months to come, recent gains may be partially reversed.

The euro was heavily sold after the European Central Bank's policy announcement on Thursday, but the pound sterling held close to its October high against the euro on Friday. However, the most recent forecast review from Rabobank implies that this rebound may already be on borrowed time.

✕ EUR/GBP Price Chart

GBP/USD remained near weeks highs

The market is reflecting mixed signals for this currency pair. After the Federal Reserve's (Fed) preferred gauge of inflation fell short of expectations and did nothing to convince the market to start bidding again for the greenback ahead of next Wednesday's interest rate decision, the Pound to Dollar exchange rate stayed robust near the week's highs.

Since the Fed prefers PCE price indices as an indicator of inflation, it might be significant to Federal Open Market Committee members next week since the Core PCE price index increased at an annualized rate of 5.1% last month rather than the 5.2% experts had predicted.

✕ GBP/USD Price Chart

Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com