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ECB CUT

The Euro has depreciated sharply today following the European Central Bank’s (ECB) decision to cut the benchmark interest rate by another 0.10% to a new record low of 0.05%. The deposit rate was also lowered further into negative territory to -0.20%. ECB President Mario Draghi also announced the ECB will launch an asset purchase programme; buying debts from banks in a move that is hoped will add liquidity into the financial system and revive lending.

The Euro fell more than 1% against both the US Dollar and British Pound. Falling back below 1.30 against the US Dollar, hitting a low so far of 1.2969 and to a low of 0.7905 (1.2650) against the Pound. Further action including more aggressive stimulus measures such as Quantitative Easing from the ECB is still possible in the future.

US Dollar Strengthens on FOMC Minutes

The USD has appreciated overnight after minutes released by the Federal Open Market Committee (FOMC) showed that the US central bank was gradually taking a more hawkish stance as economic conditions (labour market and inflation) begin to normalise to levels last seen before the financial crisis.

The growing prospect of interest rate rises in the US coming sooner than expected have caused the USD to appreciate, forcing GBP/USD back below 1.66, hitting a low of 1.6565 so far and forcing the EUR down against the USD to 1.3242. Against the Yen the USD also appreciated sharply with USD/JPY hitting a high of 103.96.

GBP Higher Following Bank of England Minutes

Minutes released today from the Bank of England meeting held 7-8th May 2014 show that the Monetary Policy Committee (MPC) voted unaminously to maintain the Bank Rate at 0.50% and maintain the stock of purchased assets financed by the issuance of central bank reserves, known as Quantitative Easing at £375 billion. Whilst the vote was unaminous to hold rates the minutes indicated that some MPC members are beginning to think that the time may be close for an interest rate rise. The prospect of an interest rate rise makes the Pound more attractive and can be attributed to the Pound’s strong performance. Following the release of the minutes and coupled with strong UK retail sales data the Pound appreciated to a high of 1.6920 against the US Dollar and to 1.2340 against the Euro, before retracing slightly against both currencies.

http://www.bankofengland.co.uk/publications/minutes/Documents/mpc/pdf/2014/mpc1405.pdf

 

Bank of England

As expected The Bank of England’s Monetary Policy Committee (MPC) voted to maintain the Bank Rate at 0.50%. The MPC also voted to maintain the stock of purchased assets financed by the issuance of central bank reserves, known as Quantitative Easing, at £375 billion.

The Pound remains well supported and trades near the recent highs. At 12:30 the Pound was trading on the interbank market at 1.6777 against the US Dollar and at 1.2095 against the Euro.

 

Euro Focus

The Euro is trading weaker against most currencies this morning as market participants anticipate today’s European Central Bank (ECB) interest rate decision at 1145 (GMT) and the post-meeting press conference by ECB President Mario Draghi. The general consensus indicates that the ECB will not change interest rates at its policy meeting today however there has been building speculation that the ECB may ease monetary policy and this has the support of some policymakers and IMF Managing Director Christine Lagarde.

This morning EURUSD traded at 1.3767 and EURGBP traded at 0.8280 (1.2077). Please do not hesitate to contact the dealing desk on +44 (0) 1695 581 669 or info@currencymatters.co.uk for a live quote or for further market information.

EUR & AUD Spike Higher

Today as expected, both the Bank of England and the European Central Bank kept their key interest rates on hold at 0.50% and 0.25% respectively. The Bank of England also kept its Quantitative Easing Asset Purchase Facility on hold at £375bn.

In the following ECB press conference, ECB President Mario Draghi surprised the markets with his upbeat comments regarding Eurozone inflation and growth. Inflation is expected to climb from February’s 0.8% to 1.0% by the end of the year, 1.3% in 2015 and 1.7% in Q4 of 2016. Growth forecast was revised up to 1.2% in 2014. For 2015, growth is projected to be 1.5% and 1.8% for 2016.

As a result the Euro has made notable gains against the US Dollar and the British Pound. EURUSD appreciated from a daily low of 1.3722, hitting a high of 1.3858, and currently trades at 1.3843 (0.81%). Whilst EURGBP appreciated from 0.8207 (1.2185), to 0.8287 (1.2067), and currently trades at 0.8274 (+0.76%).

Elsewhere, the Australian dollar appreciated sharply today on better than expected economic data. Australian retail sales rose by 1.2% month on month and the trade surplus widened to AUD 1.43bn.

As a result AUDUSD appreciated from 0.8973 to a high of 0.9091 and the Pound depreciated by 2 cents against the Australian Dollar from 1.8624 to a low of 1.8407.

Please do not hesitate to contact a dealer on +44 (0)1695 581 669 for a live quote.

Sterling Strength

The Pound (GBP) has appreciated to its strongest level against the US Dollar (USD) since May 2011 and to its strongest level against the Euro (EUR) since January 2013.

GBPUSD High: 1.6656
GBPEUR High: 1.2222

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Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for further information or for a live quote.

Who are EU, Who are EU

Sterling has recovered some of its losses against the Euro this morning following weak GDP data released across Europe. After initially trading flat, GBP/EUR began its ascent following the release of German GDP DATA at 7:00 GMT which confirmed the German economy had contracted by -0.6%. The pair spiked to 1.1590 immediately following the release, before continuing its climb to a daily high of 1.1646. This now puts the pair within sight of a potential target level of 1.1722, a price range where there is substantial resistance.

EU GDP figures were not any prettier either this morning, as the Eurozone recorded a GDP contraction of -0.6% also. This data also helped add further impetus to the Pounds advance against the common currency. The European GDP data hurt the Euro right across the board this morning, with EUR/USD having dropped over a cent in the space of three hours, falling to a daily low of 1.3318.
Attention is now likely to turn to the US session this afternoon where we will see the release of US jobless claims figures. Whilst EUR/USD has been trading consistently downwards this morning, contrastingly we have seen sporadic movements in cable as the pair has been pulled following the economic data from Europe. That said, sentiment towards the pair still remains bearish with 1.5268 remaining a key target level, which should it be tested, could signal a significant downtrend.

Looking ahead to tomorrow, UK Retail Sales figures are due out at 9:30 GMT and are expected to improve from the previous month, potentially aiding the Pound in recouping some of its recent losses. However, make no mistake that the focus tomorrow will well and truly be placed on the G20 meeting, which is set to be a rather contentious affair. The threat of global foreign exchange war is likely to be top of the agenda, with Japans monetary policies likely to feature heavily also. Due to this, Japan may have actually welcomed the data today that showed it remained stuck in recession last quarter, adding to Japanese officials arsenals further ahead of the G20 showdown tomorrow.

Mark Webster

Currency Matters

Political agreement would not appear to be any closer in the US following President Obama’s State of the Union address last night. With the postponed fiscal cliff spending cut discussions due to re-emerge in the forthcoming weeks, markets will be hoping bipartisan agreement is easier to come by than it was in the run up to the new year deadline. Last night President Obama offered little in terms of initiatives that are likely to do much to help increase US growth, such as minimum wage increases and climate initiatives. However, when it came to deficit reduction the president was slightly more emphatic, stressing that whilst it is important; “deficit reduction alone is not an economic plan”. It would appear that the theme of political impasse is due to continue as discussions regarding spending cuts and tax hikes loom closer.

Elsewhere yesterday we saw confusion in the markets following contradictory statements released by the G7. Initially indicating that it was unconcerned with recent worries regarding the weakening Japanese Yen, the statement from the G7 seemingly appeared to accept Japans latest fiscal policy manoeuvring as a domestic issue. However this stance was contradicted soon after the initial statement was released, when a G7 official clarified the situation, expressing that the G7 was in fact concerned with Japans monetary policy and the statement had been directed at Tokyo. This led to a wide trading range yesterday for USD/JPY, as the pair bounced between 94.40 – 92.94. We may well see fluctuations in the Yen continue tomorrow as the Bank of Japan is due to release its interest rate decision and monetary policy statement in the morning.

Unsurprisingly Sterling is down against the Euro and the Dollar yet again this morning. After falling over night and during the early hours of this morning, BoE Governor Mervyn King’s speech following the Bank of England’s Quarterly Inflation Report offered no assistance in halting the decline. Despite Governor King insisting the UK economy was set to recover, his comments were shrouded in numerous caveats. Mainly these were that growth is going to take longer and be weaker than had originally hoped, and that inflation is likely to rise. Markets reacted negatively to the Governors speech, in which it was also disclosed that inflation is likely to remain above target as it is becoming increasingly difficult to bring CPI back to the targeted 2%. This lead to immediate downward spikes in both GBP/EUR and GBP/USD, as the pairs dropped as low as 1.1514 and 1.5533 respectively.

With little more economic data due to be released this afternoon, it’s more than likely we will see markets consolidate in preparation for tomorrow. GDP figures are due out across Europe tomorrow morning, with the majority of market focus being heavily placed on German and EU figures. Should these figures fall short of market expectations, this could well be a catalyst for Sterling to begin recovering some of its recent losses.

Mark Webster

Sterling update

Sterling has had a pretty dismal start to the day this morning having had a simultaneous drop off against the Euro and the Greenback at 8:30am, with both pairs losing over half a cent in little over half an hour. Sterling has since levelled off and is currently holding against the Euro at 1.1637 and 1.5585 against the Dollar.

Earlier this morning we had UK housing data released by RICS which showed the Housing Price Balance dropped to -4% in January. Further UK data has just been released and isn’t too favourable either, with the UK Consumer Price Index remaining stagnant at 2.7%, and the Core Consumer Price Index falling marginally to 2.3% last month, down from 2.4%. The UK Producer Price Index met market consensus at 2.0% whilst UK PPI Core Output fell to 1.4% in January, capping off yet more negative data for the UK, something which seems to have become the norm since the turn of the year.
Sterling has continued to suffer on the back of consistently weak UK data and improved sentiment within the Euro Zone. Going forward the outlook doesn’t look any more promising for Sterling either. Long term charts for both GBP/USD and GBP/EUR indicate that risk is still to the downside with key resistance levels being potentially targeted at 1.5278 and 1.1223 respectively.

However, Sterling could well rebound should sentiment towards the Euro Zone begin to change, especially following the Pounds such severe and rapid losses over the last few weeks. With GDP figures due out across Europe on Thursday and Italian Prime Minister Elections drawing ever closer, potential for a decrease in the Euro remains significant. Furthermore, after the recent 18 month highs for the Euro against the Pound and the Dollar, the grumbles of European leaders with regards to the common currency’s current strength are becoming louder. This issue is also likely to be mentioned by ECB President Mario Draghi in his Speech today, which could well have an impact on GBP/EUR trading this afternoon.

Mark Webster