(26 JANUARY 2018)DAILY MARKET BRIEF 1:Currency war talks make headline amid Mnuchin comments

EUR/USD took a roller coaster ride over the last 24 hours as US Treasury Secretary Mnuchin and President Trump made opposite comments about the greenback, while the ECB was holding its first press conference of the year. On Wednesday, The former said that a weak dollar was good for US trade, while on Thursday the latter said "The dollar is going to get stronger and stronger and ultimately I want to see a strong dollar". During the press conference, Mario Draghi made a remark about Mnuchin’s comments, saying that EUR/USD has increased not only because of the improvement of the Eurozone’s economy but also “in part due to exogenous reasons that have to do with communication. But not by the ECB, but by someone else. This someone else’s communication doesn’t comply with the agreed terms of references.”

During the press conference, the single currency printed a new multi-year high at $1.2537, the highest level since December 16th 2014. Shortly after the ECB press conference, EUR/USD eased to 1.2370 as Trump showed its support for a strong dollar during an interview at the World Economic Forum in Davos Switzerland. On Friday, the currency pair extended gains and climbed back to 1.2494 as the US dollar fell across the board, losing ground against its peers.

It is quite uncommon for Draghi to mention “currency war” during an ECB press conference. It shows that some tensions persist and that international competitiveness through monetary policy is more than ever a hot topic that every single country use it to its benefit but that it is not allow to mention explicitly. Backing publicly competitive devaluation is similar to show support to protectionism in trade policy, you don’t talk about it but you try to use it at your own benefits.

By Arnaud Masset