Posts belonging to Category ECB



ECB Comments push GBP/EUR to 1.14

The euro broadly strengthened in the wake of the European Central Bank’s latest interest rate decision, leaving GBP/EUR to trade at new lows.

The euro broadly strengthened in the wake of the European Central Bankís latest interest rate decision, leaving GBP/EUR to trade at new lows.

 

What movement have we seen in the wise money markets?

While the pound put in another poor performance on Thursday, sliding to 1.14 against the euro and touching a low of 1.21 against the US dollar, the euro surged across the board.

EUR advanced by over 0.5% against GBP, AUD, CAD, NZD and JPY as the market responded to the European Central Bankís latest interest rate decision.

Euro gains against the US dollar were less substantial in light of the high likelihood of a Federal Reserve interest rate hike taking place next week, but EUR/USD did briefly breach 1.06.

So, what happened?

Initially the reaction to the ECB’s interest rate decision was pretty minimal as the central bank left everything unchanged.

However, Super Mario (the affectionately nicknamed ECB President) gave the euro a big kick higher as he announced positive revisions to Eurozone growth forecasts.

The future path of ECB policy is still pretty unclear, but Draghi stated; ‘We haven’t seen yet any significant development on the wages front, and that is the key point. We are more optimistic about the growth forecast, we have to see how these improved prospects, as far as growth is concerned, translate into higher headline inflation.’

With little news to lend the pound support, the slightly more optimistic outlook put forward by the ECB was enough to drive the GBP/EUR exchange rate to its worst levels of the week so far.

What should you be looking out for

Next week is set to be a volatile one for the currency market. For one thing, weíve got the hotly-anticipated Federal Reserve interest rate decision.

If the Fed hikes interest rates, and the odds of that happening are currently sitting at over 80%, the US dollar is likely to surge – potentially causing GBP/USD to drop to its lowest levels since 2016.

But UK news is also likely to trigger GBP volatility next week. Of the data set for release Wednesday’s employment numbers and Thursday’s Bank of England (BoE) interest rate decision carry the most weight.

With the job stats, a dip in average earnings or a disappointing employment change number would inspire pound losses, but the BoE decision could have the power to reverse any previous pound movement.

As the recent UK PMIs hinted at a slowdown in domestic growth in the first quarter the BoE may opt to err on the side of caution and reiterate that interest rates are as likely to be cut as raised. However, pound volatility is likely to follow any indications that the central bank is leaning more one than another.

Sterling regains modest ground against the majors

Sterling fought to regain some fairly modest ground against the majors.

Sterling fought to regain some fairly modest ground against the majors.

Whereas political uncertainties in the Eurozone thanks to upcoming elections and Trump’s fiscal policies severely damaged the euro and dollar respectively.

Markets haven’t completely forgotten about Brexit though as it looks like Sterling could take an impact this week due to the political uncertainty. There are rising concerns about the possibility of a second Scottish independence referendum as part of the fallout from the Brexit vote.

Wise Money focuses on the US

On the political note, this week will likely be fuelled by the US as we have Donald Trump speaking on Wednesday about healthcare reform amongst other topics before the Congress in Washington DC. We also have Fed Chair Janet Yellen speaking on Friday afternoon and plenty of ticket US data spread out across the week ñ it’s likely to be a volatile next 5 days for GBPUSD.

On the other hand, the US calendar may provide some mixed news for the dollar with a further healthy pick-up in personal consumption in January forecasted. Although, core-PCE inflation looks set to edge back to 1.6%.

Eurozone cash HICP inflation expected to rise

Eurozone Cash HICP inflation is expected to rise to 2%, slightly above the ECB’s target, which could lead to further calls from some quarters for a tighter monetary policy.

More specifically however, today all eyes will be on the minimal macro-data weíre given to start the week with the monthly US Core Durable Goods Orders at 1:30PM. We’ll have an array of less important euro data throughout the morning and US data throughout the afternoon too but this isn’t expected to cause too much of an impact.

Pound gains 1% on euro

It was another strong day for the pound after a sluggish start saw it gain 1% on the euro and 0.5% on the dollar.

It was another strong day for the pound after a sluggish start saw it gain 1% on the euro and 0.5% on the dollar

Many investors believe that the BOE may hint at raising interest rates soon when they meet at their quarterly inflation meeting today. With many suggesting Brexit-related caution, Mark Carney may surprise with a more front foot approach at todayís Inflation Report as it revises up its near-term growth forecast and highlights growing underlying inflationary risks.

Fed leave rates unchanged

The FOMC outcome has seen the Fed leave rates unchanged, the result of which has been the dollar chopping around. In what was little surprise, the Fed stated the US economy is indeed strengthening, but not enough to encourage it to raise borrowing costs. This coincided with the ADP jobs figures, coming ahead of Fridayís official US jobs data/NFP. These were much better than expected, coming in at 246K as opposed to the expected 165K.

Mario Draghi due to speak today

Much of Thursday will be spent dissecting the outcome of the FOMC Meeting and there is not too much data from the EU or the US to get in the way of this, although Mario Draghi is due to speak around lunch time in Europe. Aside from this, it will be all eyes on Carney and his troops at the BOE as they make their decision on interest rates.

US FOMC meeting takes focus

Today’s main focus will be on the US FOMC meeting which will occur in the evening.

Today's main focus will be on the US FOMC meeting which will occur in the evening.

It is expected that the FOMC will not move interest rates but the market will be scrutinising the accompanying statement for clues on future moves. The FOMC will still be adjusting to incoming President Trump and will await clarification on his fiscal policy. Ahead of the meeting, we will get January’s ISM Manufacturing data, which should show a slight improvement.

Potential devaluation of the dollar

The immediate impact of Trump has been geared towards protectionism and a tougher immigration stance which is driving a risk off tone. Yesterday’s comments from the Trump administration accused Germany of benefiting from a ‘grossly undervalued’ exchange rate which led to euro gains versus the USD. This suggests that the US under Trump may seek to devalue the USD.

Sharp dive for Sterling

Yesterday, Sterling took a sharp dive in early trading as the formal process of passing a bill to trigger article 50 in parliament commenced. Volatility in the pound is likely to continue as we move closer to trigger date and surrounding Brexit related news. Today, we are expecting some hard data to review with the UK Manufacturing PMI.

Inflation closely watched in the Eurozone

Yesterday Euro HICP inflation data came in slightly stronger than expected, however, core inflation remains under 1%. The European Central Bank suggest that they will continue to look through any higher inflation for now, as the underlying trend is still relatively weak and attributable to temporary factors. Today, we will also review the euro area Manufacturing PMI.

ECB Quantitative easing programme to be extended until end of 2017

The European Central Bank has announced yesterday its commitment to extend its quantitative easing programme to the end of 2017 and longer if needed.

The European Central Bank has announced yesterday its commitment to extend its quantitative easing programme to the end of 2017 and longer if needed.

Indeed, its governing council decided to extend by nine months its asset purchase scheme, which consists in buying assets from banks with newly created money. However, to try and help drive inflation and growth back up, the ECB will reduce the size of monthly bond purchases by $20bn to Ä60bn; a move that confounded the markets.

Draghi admitted that the decision had a ìvery, very broadî support and implied that he couldnít get unanimous backing for the plan with Jens Weidemann from the Bundesbank likely to have opposed such move. Despite such move being greeted as tapering of the unconventional QE programme, Draghi was adamant to negate this; he left some City experts a little confused as he stated ìThe natural way to look at a word like that is to have a policy whereby purchasers would gradually go to zero, and thatís not been discussed or, as a matter of fact, itís not even been on the tableî.

The euro weakens against the US dollar and Sterling

As a result, the single currency weakened against the US dollar and the pound as markets digested an unexpectedly dovish outlook on monetary policy hinting that QE could go on for much longer if required. This provided a welcome boost to European stock markets as investors cheered the ECB decision to remain in ìeasing modeî, with the promise of more cheap money certainly putting trading floors in a Christmas mood. During his press conference Mario Draghi also warned against complacency over the impact that Brexit vote and Donald Trumpís election win will have on the Eurozone and the financial markets.

Data released yesterday and data to come

The ECB was the overwhelmingly dominating theme in markets yesterday. In the US, Initial Jobless Claims were reported as being down to 258k. In Europe, the only data worth of note came from France where the Bank of France business sentiment reading for November improved.

Looking at today, the calendar is light as we head towards the weekend. This morning, in Germany, we’ll get the October trade report, and in France, we will receive October industrial production; in the UK, weíre expecting the trade data. This afternoon, in the US, final revisions to the October wholesale inventories report and preliminary University of Michigan consumer sentiment survey are scheduled for release.

 

ECB monetary policy left unchanged

Sterling is higher this morning against the euro, after the European Central Bank’s (ECB) meeting at lunchtime yesterday failed to deliver any significant change.

Sterling is higher this morning against the euro, after the European Central Bank’s (ECB) meeting at lunchtime yesterday failed to deliver any significant change.
The ECB left monetary policy unchanged, as expected, with the refinancing rate remaining at 0.00% and the deposit rate at -0.4%. The euro briefly spiked higher after Mario Draghi said that there was no discussion, either on tapering the QE programme or extending it beyond the original deadline of March 2017.

Whilst sterling finished strongly on the euro, it wasn’t reciprocated on the US dollar, as strong US housing data released had the greenback soaring late in the session.

Portugal’s government bond yields at six week interst rates low

This morning, Portugal’s government bond yields are hovering near six week lows, ahead of a key review by Canadian ratings firm DBRS, out after the close of play today. Whilst this is slightly concerning for Portugal, they are expected to get through the test unscathed. If it were to be downgraded, it would fall out of the ECB’s QE programme.

Wise Money news to come

Today is fairly thin in terms of wise money news data, however we do have UK public finance figures out this morning. Whilst expected in lower than last month’s number, a lower figure shouldn’t dampen Sterling’s resurgence on the euro too much. Aside from this, most of the day will be spent interpreting the ECB press conference from yesterday, with many investors keenly watching Sterling/euro advances.

Wise Money waiting for key US data on Friday

Today we have US employment data which will give us a taster as we build up to the key non farm payroll data on Friday.

wisemoney US employment data which will give us a taster as we build up to the key non farm payroll data on Friday.

Feedback from the labour market is the highest consideration, as the FOMC judge whether it is appropriate to increase interest rates. On Friday the payroll data is expected to come in at a healthy 175k, and average earnings are likely to increase by 0.2%.

We could also see the unemployment rate fall slightly to 4.8% from 4.9%. If we see positive US data this week, it will build expectations for a September rate hike and lead to USD gains.

Eurozone inflation softer for August

In the Eurozone, CPI for August (y/y) has come in slightly softer than expected at 0.2% vs 0.3% expected. In addition, the unemployment rate for July has been confirmed at 10.1% which is in line with forecast. This morning the euro has been on the back foot and disappointing inflation data will not help this trend.

Pound finds tentative momentum

The Pound has managed to pick up this morning against the euro and the USD. Following a better run of UK data this week, the pound is finding some tentative momentum. Tomorrow we have UK Manufacturing PMI, and on Friday Construction PMI to give further feedback for the UK economy.

ECB lowers negative interest rates

It was a tale of two halves for the European Central Bank (ECB) meeting yesterday as interest rates were dropped.

It was a tale of two halves for the European Central Bank (ECB) meeting yesterday as interest rates were dropped.Initially they delivered a comprehensive package of easing which included a cut to the main refinancing rate from 0.05% to 0% and a deposit rate cut to -0.4% from -0.3%. QE was also increased and expanded and they introduced a new year 4 year liquidity package in the form of TLTROs.

At this point the market responded positively and the euro lost ground sharply against the US Dollar and the Pound. However, the rug was pulled by confirmation in the Q&A session from Mario Draghi that he does not expect to see any further rate cuts.

This line in the sand on no further interest rates spun the euro from weakness to strength in a very sharp about turn and led to euro gains on the day amidst huge volatility.

It seems the ECB are trying to focus their attention on the credit space through bank lending to support the recovery and to curb disinflation. The decision is effectively moving away from targeting euro weakness as a way to turn the tide of falling inflation.

The ECB has also now bought time before any additional easing would be considered. In summary they have sent the message out that they are done for now. This conclusion has been taken as a disappointment by the market which had expected the easing bias to continue with forward guidance and some are questioning if this is the ECB’s last stand and they are now out of bullets.

German inflation numbers come in weaker than expected

Today will be largely spent assessing yesterdays’ ECB decision and fallout. Elsewhere in the EU, this morning we have had German inflation numbers which have come in weaker than expected at -0.5%. Later on it’s the turn of UK trade balance which is expected to be slightly up from last month’s figure.

Aside from this there is little data out, however over the weekend we have some key Chinese data to look forward to.

Wise money markets look to central banks for future direction

After the positive US Confidence figures to start last week US Dollar suffered as the week came to a close, so did the Dollar rally and strength that was sustained for the past 3 weeks.
Wise money markets look to central banks for future direction
With mixed messages coming from America, the USD suffered as investors continue to look for further hints at reductions in the Fed’s current cycle of monetary stimulus, as stock markets start to suffer.

This morning, April Chinese Manufacturing PMI was revised downwards, in further signs that momentum in the Republic is continuing to falter as domestic demand is flagging.

Also, this morning weaker then consensus retails sales data from Australia is continuing to weigh on the currency ahead of tomorrow’s interest rate decision.

In the UK there is a quiet week data wise to follow with Manufacturing PMI this morning expected to show slight growth at 50.2 and Services PMI on Wednesday showing growth at 53.

Thursday’s Bank of England interest rate decision is the last policy meeting and statement from outgoing governor Sir Mervyn King before Mark Carney take the reins in July.

This is unlikely to be much of an event this month with investors waiting until next month’s policy statement for any direction on further QE and economic health of the UK.

Over the channel after the ECB gave the signal for easier deficit-reduction in Italy all eyes will be on the policy statement and interest rate decision on Thursday to see what the central bank stance is towards other nations and also the concept of negative rates to stimulate lending to the real European economy.

Manufacturing PMI data today and Services on Wednesday are expected to come in line with releases late last month to show a brighter picture in the Eurozone but that the area is still struggling to find growth in the sectors.

ECB cuts interest rates

The big news yesterday was Super Mario-  ECB chief, dropping interest rates by 25 basis points at the ECB monthly meeting.ECB cuts interest ratesThe move was widely expected in the market which is why there was not a huge reaction in the aftermath, with GBP/EUR nudging up 60 pips or so. The larger move was EUR/USD which after trading over 1.32 came back to just over 1.30.

I think the market was hoping for more details on how the ECB will help to extend to credit to SME’s across the euro zone, but as usual Mario talked a great deal with zero content, I guess we will find out more about the plans in planned speeches and press leaks during this month.

In terms of the euro moving forward, the rate cut should allow GBP to push towards the 1.20 level over the next couple of months. This should be accelerated by today’s non-farm payrolls which are expected to be softer than originally forecast.

The Dollar has in recent months begun to trade like a normal currency, away from the Risk-on/risk-off paradigm that dominated US Dollar trading over the past few years. That is why a disappointing NFP number should see the Dollar weaken slightly, however don’t be surprised to see GBPUSD ramp up as we move towards the number.

Eurozone PPI is also due this morning at 9am – recent individual country PPI’s have been dire so expect the theme to continue with currency area wide number as well.