Stock markets across Europe and America have fallen as shares in one of Portugal’s largest banks were suspended after falling more than 17% after reports that their parent company missed some short term debt repayments, a reminder that the European banking crisis may not be over.
With US interest rates set to stay near zero this year and the market looking for safe havens the Japanese Yen appreciated sharply, forcing USD/JPY from a high of 101.66 to 101.07 before recovering slightly to 101.18, still down 0.42%. The Euro has fallen but has remained surprisingly resilient, falling against the USD from 1.3649 and currently trading at 1.3597 but could be susceptible to further falls should confidence in the Portuguese banking system and the wider Eurozone continue to deteriorate.
In the UK, the Pound is relatively steady after the Bank of England voted to maintain the Bank Rate at 0.50% and maintain its asset purchases at £375bn. GBP/USD has traded between 1.7106 and 1.7122. GBP/EUR has appreciated from 1.2551 this morning currently at a high of 1.2595.
In an effort to encourage lending, stimulate the Eurozone economy and avoid deflation the European Central Bank (ECB) today cut its main benchmark rate from 0.25% to 0.15%. More significantly the ECB cut its deposit rate from 0.00% to minus 0.10% meaning that commericial banks will have to pay the ECB to lodge their money with the central bank in a bid to incentivise banks to lend to businesses rather than hoard cash at the ECB, therefore stimulating economic growth. The ECB also exteneded its programme of long term loans offerd to banks who lend to businesses. ECB President Mario Draghi indicated that further measures could be introduced in the future.
Following the ECB announcement and the following press conference the Euro fell from a high of 1.3643 to a low of 1.3504 before recovering to just below 1.36 by 14:00 GMT. Against the Pound the Euro fell from 0.8139 (1.2286) to a low of 0.8065 (1.2399) before appreciating back towards 0.81p by 14:00 GMT.
Elsewehere, as expected the Bank of England maintained its Bank Rate at 0.50% and the size of its Assett Purchase Programme at £375bn. We now await the minutes of that meeting due to be released 08:30 GMT on Wednesday 18th June to gain an insight into if the Bank of England is any nearer to raising UK internest rates. The Pound continues to trade between 1.67 and 1.68 against the US Dollar.
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.
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.
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 email@example.com for a live quote or for further market information.
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.
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The Euro continues to remain under pressure following concerns that the Eurozone risks a period of deflation and prolonged low interest rates. The official Eurozone inflation rate released on Tuesday confirmed that Eurozone inflation fell from 0.90% in November to 0.80% in December.
As expected, the ECB held interest rates at their record low of 0.25%. In the post meeting press conference, ECB President Mario Draghi commented that he expected key ECB interest rates will remain at present or lower levels for an extended period of time. Draghi also warned that the Eurozone may experience a prolonged period of low inflation and that risks on economic outlook remain on the downside.
As a result the Euro depreciated against the US Dollar hitting a low of 1.3548 and depreciated against the British Pound hitting a low of 0.8231 (GBPEUR 1.2149).
In the UK, the Bank of England kept its interest rate at 0.50% where they have been held since March 2009 and maintained its Quantitative Easing Asset Purchased Programme at £375bn. The Bank only released a brief statement and issued no further guidance. Back in August, Governor Mark Carney said unemployment would have to decline to 7% before an interest rate rise would be considered. An improved economy has meant that this could happen sooner than expected. The majority of economists still do not expect UK rate rises before mid-2015, however, expectations are mounting that the Bank of England could start to raise interest rates in 2014.
The Pound continues to trade near recent highs (1.6604 02/01/14) against the US Dollar at 1.6441-1.6498 and has so far hit a high of 1.2149 against the Euro.
The Pound has surged a cent higher against the Euro today following today’s decisions from the Bank of England and the European Central Bank. The Bank of England Monetary Policy Committee voted to maintain interest rates at 0.50% and its Quantitative Easing Asset Purchase Programme at £375bn whereas the European Central Bank voted to cut their interest rate by 0.25% from 0.50% to 0.25% resulting in a Sterling interest rate differential advantage of 0.25%.
GBPEUR hit a high of 1.2045 from an earlier low of 1.1890 before falling back to 1.1980. The Euro also fell against the US Dollar with EURUSD falling from a high of 1.3528 to a low of 1.3296 before recovering back above 1.33 and currently trading at 1.3365. The Pound is down against the USD from a high of 1.6089, hitting a low of 1.6010 before recovering slightly and currently trading at 1.6025.
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Congress finally managed to reach an agreement yesterday evening regarding an increase to the federal debt limit and a short term budget which will reopen the government and send furloughed workers back to work. Despite Congress having left passing a bill to the very last minute, as has become a common occurrence in recent years, judging by market reaction, investors did not seem too phased despite a plunge back into global economic crisis being potentially imminent.
Following the aversion of what could have been the beginning of a truly global crisis – the first US default in over 200 years – very little changed in the markets. Equity markets remained rather quiet as did the FX market, especially when taking into consideration the enormity of the catastrophe that could have materialised had an agreement not been reached. The dollar rose slightly in the build-up to Congress reaching a deal with GBP/USD falling to a daily low of 1.5893 just after 17:00 yesterday, however the greenback has pared its gains this morning with cable rising to a daily high of 1.6092 and similarly EUR/USD reaching 1.3637 so far this morning after having fallen as low as 1.3472 yesterday.
Tomorrow evening we will see potentially the most crucial Federal Reserve Interest Rate Decision and FOMC statement of this year. Whilst the Federal Reserve is widely expected to maintain interest rates at their current levels, speculation has grown in recent months that they will make their first reduction to their unprecedented bond buying program this month. ‘Tapering’ has been the buzz word for the last month or two ever since Federal Reserve Chairman Ben Bernanke hinted this summer that the Fed would begin to taper its current $85 billion per month bond buying program before the end of the year.
As the state of the US economy has gradually improved over the course of this year and US unemployment figures have closed in on the Fed’s 7% target (disregarding this month’s miserable Nonfarm payrolls), expectations have grown that September will be the month that tapering will begin. The majority of market commentators had been expecting a gradual reduction to begin this month at around the $10-$15 billion mark, however with the very poor Nonfarm payrolls released earlier this month it remains plausible that the Fed will hold firm and maintain their current purchasing levels for yet another month.
Given the amount of speculation that has been afforded to this meeting we can expect to see a substantial amount of volatility surrounding the greenback in the run up to and following the release of the Federal Reserve’s decision. Should the Fed decide to maintain their current level of stimulus we could see cable advance further on its gains this week with a potential test of 1.60 upwards. A reduction of $10-$15 billion would likely hold GBP/USD steady with limited downside risk for sterling following the consistently positive data that has been released recently concerning the UK economy – enough to even suggest that we have “turned the corner” according to George Osborne. Whilst a reduction of $20 billion upwards would likely lead to significant Dollar strengthening right across the board and could see cable par its recent gains whilst 1.56 levels would likely hold off any reversal.
Tomorrow we will also see another interest rate decision however the outcome of which is considered a lot more certain and its impact far less wide-reaching. The Bank of England will release their interest rate decision and minute’s tomorrow morning at 09:30 UK time. BoE Interest rates and stimulus levels are expected to remain unchanged following the Bank of England governor Mark Carney’s comments to a Parliament Select Committee last week where he indicated that the BoE will maintain historically low interest rates for as long as necessary.
GBP/EUR is currently trading close to the 1.19 level, its highest level since the turn of 2013, with a consistent break above 1.1950 potentially signalling a return to levels above 1.20. However, until the outcome of the German Federal Elections later this month, which now seems a forgone conclusion in favour of Chancellor Angela Merkel, movement in GBP/EUR is likely to be limited. Once the German election has finally been decided we may well see a re-emergence of the Euro-Crisis that has notably been shunned from media attention in the run up to elections. A return to Euro-zone bailouts and a seemingly imminent collapse of the euro will only help push sterling back up to 2012 levels against the common currency.