No rate change for ECB as stimulus measures are scrutinised
Following the European Central Bank (ECB) rate decision yesterday, the Euro surprisingly started and finished the day at similar levels against Dollar and Sterling despite a lot of price action.
The Euro showed weakness against Sterling and fell to 1.2731 as Draghi’s speech was taking place, but then calmed and finished the day back around the 1.26 levels as the interest rate decision remained at 0%. The ECB also left its stimulus program unchanged, but did state that the Eurozone’s monetary authority will do more if unexpected trouble hits the currency union.
This morning, the Euro opens just above 1.2700 handle but we may see further volatility following the Markit Composite, Manufacturing and Services PMI data.
In the US, initial jobless claims came in better than expected, falling to 247k from 253k the previous week. The labour market is one of the key indicators Janet Yellen will look to when weighing up the next rate hike decision, so the fact that the initial jobless claims posted a 43-year low yesterday will be welcome news for the Dollar bulls. Cable had reached daily highs of 1.4440, the highest level since late March. However, the Dollar bulls took control into the US session, and the pair fell sharply to post a small loss for the day.
The Dollar opened this morning at 1.4323, down 0.05% from Thursday’s open. EURUSD rallied during the ECB meeting, before hitting strong resistance at the 1.1400 level. The Dollar buying pressure proved too much for the pair in the American session, as investors look to the Federal Open Market Committee meeting next week where a more hawkish tone is expected. The pair opened at 1.1287 this morning, down 1% from the highs posted yesterday.
UK retail sales data came in significantly worse than expected yesterday, at -1.3% for March. However, government borrowing data had the best outcome for March in 10 years. The data will increase concerns surrounding both the growth environment and the Bank of England’s dovish tone.
Sterling failed to maintain levels seen earlier in the week, with GBPUSD falling from 1.4400 throughout the day. Today, EU referendum talks will likely re-emerge due to a lack of economic data for release in the UK. With most polls showing that staying in the EU looks to be more likely, confidence around Sterling is starting to increase.
Data to watch: 8.30am German April PMI, Composite, Services & Manufacturing. 9am Euro April PMI, Composite, Services & Manufacturing. 14.45pm US Markit Manufacturing PMI April.