Yesterday, as expected, the European Central Bank held interest rates steady (refinancing: 0%) while also confirming the winding down of their almost 4-year quantitative easing program. The central bank additionally stated they would reinvest proceeds from their purchases back into the market, until past the point where they begin to increase interest rates. Their first rate hike is forecast for between 2019 Q4 and 2020 Q1. Draghi’s press conference did lean toward the dovish side, with the central banker confirming risks were tilted to the downside in respect to growth. It appears after a year of optimism for Eurozone growth, the region is entering back into the economic malaise which dogged it for many a year.
Naturally the euro saw a weaker outcome on the back of this performance from Mario Draghi. The pound managed to appreciate nearly half-a-cent against the shared currency throughout the afternoon session. Whilst rates remain low and optimism diminishes across the region it’s safe to say the single currency will remain pressured until something changes. The ECB can produce stimulus in the form of low rates and QE but the region must try and unite on a fiscal level. Northern Europe appear content with their current account surpluses while Southern Europe struggles with large deficits. If the region wishes to join the likes of the US growth wise, the fiscal element must be amended so they can collectively prosper.
Today’s session sees manufacturing and services data from across the Eurozone and US. Additionally, retail sales numbers will be reported from the US at 1330. Keep a close eye on Brexit developments today and over the weekend. Any negativity across the weekend while markets are closed may lead to some nasty gaps for GBP on the Sunday evening open. Be aware! Have a great weekend.
9:04am, December 14th 2018
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