Major News This Week

Last week was once again very volatile on the currency market. The greenback was once again the big winner of the week with gains of 1.39%, 2.03, 0.83% against the EUR, GBP and CAD respectively. Last Thursday the ECB and the BoE both surprised markets by their pessimistic outlook on the state of their respective economies. Furthermore, Mark Carney (BOE governor) and Draghi (ECB governor) both decided to take a page out of Mr. Bernanke's book and use some type of forward guidance on the interest rates. Indeed, they both mentioned in their way that the current accommodative policy will be needed for an extended period of time. On this side of the pond, we were treated to the U.S. and Canadian jobs data last Friday. They both exceeded expectations with a loss of 0.4K (vs -7.5K expected) jobs in Canada and 195K creations (vs. 165k expected) in the United States.

The Loonie

“Those who fail to learn from history are doomed to repeat it.” - Winston Churchill

The political turmoil last week – the resignation of two key ministers in the Portuguese government responsible for implementing the country’s international assistance plan – sent European exchanges plunging. In addition, unemployment in Europe has reached a new record high (see Table 1); Greece and Spain are leading the way, with over one quarter of their active working populations currently unemployed. Will Europe be dusting off the 2012 Greek rescue plan? Europe’s leaders have not ruled out the possibility of contagion to other countries in the eurozone. There has been a series of quantitative easing programs and the European Central Bank (ECB) has kept its key interest rate near zero (0.50%, see Table 2), but this has not really helped spur growth and create jobs. Mario Draghi, President of the ECB, was clear at Thursday’s monetary policy meeting, confirming that he will be very comfortable keeping the key interest rate at its current level or reducing it even further for an extended period of time. This transparent statement was intended to encourage investment and consumption. Is it the right strategy? The BCE has very little latitude left. These statements caused markets to surge and made screens go from red to green. However, they also caused the euro to drop over 120 basis points, from 1.3015 to 1.2888.

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