Although traders continue to complain about the historically low levels of volatility, including in foreign exchange
markets, some currency pairs began the week with a 'bang' following aggressive remarks from European Central Bank (ECB) President Mario Draghi at the Jackson Hole symposium of leading central banks.
Draghi left the door further ajar to the possibility of quantitative easing. More significantly, he called for more fiscal coordination at the euro-area level and increased fiscal stimulus to ward off the threat from slowing price rises - and to accommodate the lower inflation which can result from structural economic reforms.
The euro/dollar was lower at 1.31974 by the close of trading after having gapped lower at the start of the day from Friday's close at 1.3243.
In parallel, on the heels of Fed chair Janet Yellen's less dovish remarks at Jackson Hole markets were pricing in a 56% probability that the Fed would move on rates by July of 2015, versus 48% a week before, according to Bloomberg data on futures.
Following the above JP Morgan now reportedly sees the possibility that the ECB could cut its interest rate corridor by 10 basis points even as soon as next week.
Nomura now expects a 10 basis point cut at the September or October meeting of the ECB governing council.
Dollar/yen inched up by 0.04% to 103.97. Speaking on the side-lines of Jackson Hole Bank of Japan Governor Haruhiko Kuroda told Bloomberg News TV (twice) that if there is "anything which tends to make achieving inflation target difficult then we would not hesitate to adjust our monetary policy."
Cable edged higher, by 0.21% to 1.6584. Monetary Policy Committee (MPC) member Ben Broadbent also took part at the Jackson Hole symposium. According to the press release of his speech issued by the Bank of England he chose to focus on how the relationships between demand, productivity and supply have all been varying, making it more difficult to communicate the Bank's reaction function to the public.
Worth pointing out, technical analysts at Commerzbank still see cable headed back towards 1.60 in the "longer term".
IFO business index surprises to the downside
As regards the hard data published on Monday, the IFO institute's business confidence index for the month of August fell back to a reading of 106.3 after a print of 108 in the month before (consensus: 107).
Both the gauge which measures firms' sentiment about the current situation as well as that which tracks their expectations retreated, with the latter off to 101.7 from 103.4 in July (consensus: 102.1). A barometer of sentiment in manufacturing, specifically, fell to its least since July 2013.
Spain's producer prices dropped back to a 0.4% rate of fall in July, in year-over-year terms, versus a rise of 0.5% in June.
US new home sales dropped 2.4% month-on-month in July to reach an annualised rate of 412,000 (Consensus: 425,000).
Estimates for the prior two months however were revised up by a total of 33,000 units.
"Altogether, this is a softer report than expected and suggests housing demand has stabilized in recent quarters, as opposed to improving," Barclays Research economist Michael Gapen wrote in a report.