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Draghi Downsize Disappointment

Draghi Downsize Disappointment

GBP
Sterling reversed most of yesterday’s gains and extended its decline following the afternoon close. The downward move appears incomplete and further weakness towards last week’s low near 1.3085 against the Dollar seems likely. However, a move back above 1.3190 would indicate that the current weakness has stabilised.

Meanwhile, Sterling also continues to suffer from looming uncertainty over the Brexit negotiations and awful UK Confederation of British Industry (CBI) realised sales data. The data was weaker than expected with a reading of -36 for October from 42 the previous month and the weakest reading since March 2009, all of which could dampen expectations of a November rate hike by the Bank of England (BoE).

Global events dominated Sterling, especially the European Central Bank (ECB) policy meeting. GBPEUR was trading around 1.1299 following the policy announcement.

USD

The US Dollar Index, which tracks the Buck vs. a basket of its main rival currencies, is on the up this morning, trading around the 95.00 level from 93.4 earlier in the week.

The index has advanced for the second day in a row as attention has switched due to unexpected Dollar buying interest after the ECB cut its stimulus programme. The move greatly disappointed expectations of ‘hawkish tapering’, hence the Dollar value rose.

In addition, the bullish stance on the Buck intensified further after the US House of Representatives passed the budget blueprint yesterday, moving a step closer to the final implementation of Trump’s tax reform proposal.

Later, advance US GDP figures for the July-September period are due along with the final gauge of US consumer confidence for the current month.

EUR

In the Eurozone, there was no change to interest or deposit rates (held at 0% and -0.4% respectively). Draghi’s rhetoric changed when he announced the ECB would continue to buy assets from January to September at a rate of €30bn per month and beyond if necessary, keeping the forward guidance open-ended. Draghi used new terminology; “downsizing” and definitely not tapering.

The Euro fell across the board and the Pound rose 1%, hitting highs of 1.1296. Against the Dollar, a slightly larger change of 1.5% was seen as the Euro fell to lows of 1.1617.

Today, the Eurozone is likely to enjoy a quiet day whereby the market will be nursing the hangover of the busy Thursday but ECB Centrist Praet will be speaking. Further, the Spanish Senate will be deciding on the governmental takeover of Catalonia.

Data To Watch:

08:15 EUR ECB’s Peter Praet Speech
13:30 USD Gross Domestic Product Price Index (Q3)
13:30 USD Gross Domestic Product Annualized (Q3)
13:30 USD Personal Consumption Expenditures Prices (QoQ) (Q3)
13:30 USD Core Personal Consumption Expenditures (QoQ) (Q3)
18:00 USD Baker Hughes US Oil Rig Count

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