European Central Bank policy statement likely to cause Euro volatility today
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Today all attention will be on European Central Bank (ECB) President Mario Draghi as the central bank’s monetary policy statement heads the economic calendar. Unlike the ‘bazooka’ we had in March, Draghi is not expected to implement any significant changes this time around. The ECB are likely to want to monitor the effect and progress of last month’s stimulus boost for a couple of months before any more action is taken, if necessary.
Nonetheless, Draghi’s press conference is likely to cause volatility. Despite aggressively easing last month, the Euro rallied following comments that the ECB would move away from reducing deposit rates and focus on other measures in the future. If the markets determine that the central bank is not out of ammunition and is ready and able to deliver further easing, the Euro should weaken. If there is any ambiguity in the forward guidance the Euro could well rally again.
UK economic data printed weaker than expected yesterday, but had a muted impact on Sterling’s price as the EU referendum took centre stage again. The claimant count rose by 6700, while average earnings failed to meet expectations – dropping from 2.1% to 1.8%. This saw the end of the rally in Sterling from the start of the week, but did not lead to any weakness as the latest MORI poll signalled that that chances of a ‘Brexit’ are decreasing. The 49% to 39% vote in favour of staying in the EU generated some much needed confidence for the Pound.
Today, retail sales data and public sector net borrowing will be released. Although retail sales printed at -0.4% for February, predictions for March are slightly more optimistic. A growth in retail sales for the UK could generate Sterling strength before Mark Carney’s presentation in New York later today. He will be speaking about the United Nation’s Sustainable Development Goals rather than UK monetary policy, so it is unclear how much of an impact this will have on the market.
The Dollar posted gains against its rivals during yesterday’s trading. Rising energy prices coupled with positive housing data improved market sentiment, giving Dollar bulls the chance to reverse some of the losses from the previous week. US existing home sales rose more than expected to an annual rate of 5.33mn, beating the market consensus of 5.30mn.
Cable opened Wednesday at 1.4395 and reached daily highs of 1.4410, but struggled to maintain any move above the 1.4400 level. The Dollar buying pressure increased into the US trading session, with the pair falling 0.56% from its highs to open today at 1.4332. The Greenback managed to claw back Tuesday’s losses against the Euro as rising stock prices increased the risk appetite of investors. The pair opened at 1.1358 and reached daily highs of 1.1388 before the US traders took over and the Dollar gained 0.80%, opening this morning at 1.1297.
Data to watch: 9.30am UK Retail Sales. 12.45pm ECB Rate Decision. 1.30pm ECB Monetary Policy Statement. 3pm Bank of England Governor Carney Speech.