Euro poised for best quarter in seven years

Last week on Friday, the Euro traded near a 14-month high and was on track for its best quarter in nearly 7 years, lifted by growing expectations that the ECB is preparing to scale back its monetary stimulus. The Euro has risen rapidly after last Tuesday’s speech by ECB President Mario Draghi bolstered expectations for the Central Bank to announce a reduction of its stimulus as soon as September. In addition, comments from Bank of England Governor Mark Carney and two top Bank of Canada policymakers last Wednesday ramped up expectations for interest rate increases from those Central Banks, putting pressure on the US Dollar.

Asian bourses followed Europe and Wall Street lower on Friday as well, as a global sell off in the Bond market spread to Equities amid fears that the post-crisis era of easy money was coming to an end. Last Thursday a Bond market sell-off reached Stocks, triggering the worst one-day drop in European Equities since September, and the biggest fall for the US S&P 500 in over a month. Fears of tighter monetary policy have weakened the Dollar and pushed Yields on 10-year US Treasuries up 14 basis points to 2.28%. Meanwhile, the 10-year Bond Yields of Germany, France and the UK have all risen at least 20bp this week.

The Aussie climbed to a three-month high of 0.7712 against the US Dollar, supported by a gauge of manufacturing activity which expanded to 51.7 in June, the eleventh straight month of gains and the fastest pace since March. Investors will be keeping close watch on the RBA monetary policy statement, due next week, for any shift in language from its neutral stance. The RBA is expected to hold interest rates at a record low of 1.50%.