The State of the Financial Markets

While the Fed and the ECB move in opposite directions, the EUR plunged to its lowest level against the USD since March 2016. The EUR/USD is currently trading at 1.0887, down 0.3919% or $0.0043. The 52-week trading range on the pair is 1.05 on the low end and 1.16 on the high end. Over the past 5 days, the pair is down 0.77%, after trading at 1.0975 on Monday, 17 October 2016. For the year-to-date, the EUR/USD pair is up 0.66%. Meanwhile, Wall Street indices have whipsawed in mid-October. The S&P 500 index closed at 2,141.16 on Friday, 21 October 2016. The Dow Jones Industrial Average ended 0.09% lower at 18,145.71, and the NASDAQ closed 0.30% higher at 5,257.40.

Driving the S&P 500 index were earnings reports from General Electric (GE) and Microsoft (MSFT). Equity markets also came under pressure with a stronger dollar weighing on the markets. The US dollar index (DXY) is currently trading at 98.63, up 0.31%. The index has a 52-week low of 91.92 and a 52-week high of 100.51. A stronger dollar has a negative impact on equities markets since the export potential of listed companies diminishes when the currency is too strong. On Friday, 21 October 2016, the USD strengthened to its best level in 8 months against a basket of currencies. It is likely that the ECB (European Central Bank) will adopt further stimulus measures to boost the Eurozone. That the EUR plunged to a 7-month low against the USD on Friday is evidence enough that massive stimulus is expected. Meanwhile, the US dollar index rose 0.4% to climb as high as 98.772 before retreating.

Currency Woes Continue for GBP

On Thursday, 20 October 2016, Mario Draghi (President of the European Central Bank) intimated that further QE measures may be adopted. If this proves true, monetary stimulus will continue beyond March 2017. EUR sales continued after the ECB President announced that no curtailing of asset purchases would be taking place. However, the EUR remains far more bullish than it otherwise would have been as a result of GBP weakness. Year-on-year, the EUR is up approximately 30% versus the GBP. In related currency news, the GBP/USD currency pair is down 0.1877% after it was announced that Brexit discussions would be difficult. The GBP has been flailing against the greenback and the EUR in the second half of 2016. In late trading in New York, the GBP was listed at 1.2229 against the dollar, after hitting a session low of 1.2176.