Eurozone: ECB Executive Board member Asmussen clarified that the ECB’s forward guidance goes beyond 12-months, hinting that interest rates are likely to remain low through next year. This led to a further scaling back of short-term interest rate expectations. Consequently, long-term rates also fell in the (semi) core countries. In contrast, 10-Y yields jumped in Portugal, following renewed political uncertainty.
US: Although we remain of the view that the Fed will start to taper its QE programmes in September, June’s meeting minutes generally had a dovish tone. Indeed, the minutes clearly showed that FOMC members want to make a distinction between ending the Fed’s QE programmes and raising rates. This seems to have become the mantra of Fed officials lately, and Chairman Bernanke’s speech was no exception to this rule. We expect the Chairman to strike a similar tone during his semi-annual Testimony before Congress this week.
EUR/USD: EUR/USD was caught in a tug of war between dovish comments from central bankers on both sides of the Atlantic. On balance, this led to some dollar weakness. That said, we remain of the view that we are on the verge of a sustained period of dollar strength.