Yesterday’s European Central Bank meeting gave the market an extra dose of volatility as President Draghi sought more time to evaluate the eurozone economy before adjusting interest rates.
The central banker took time to highlight the positives within the region but did not shy away from acknowledging the global slowdown which seems to be looming larger each day that passes. The big question on everyone’s mind was whether the ECB would surrender to market-induced pressure to lower interest rates. Draghi & Co did not budge! Instead the President of the central bank indicated that rates would remain at the current levels of 0% until at least the 2nd half of 2020. This immediately sent the euro higher against its peers which saw EURUSD pushing toward the $1.13 handle while the pound sagged to €1.1250.
There were, however, some bright spots for the euro bears. Draghi assured markets he has the ‘headroom’ to utilise further QE or cut rates should it be needed. The euro did not move on these dovish comments as Draghi has 1 foot out the door with his term expiring soon. Additionally, markets have grown to take his comments with a pinch of salt after what’s been observed over the 8 years of his tenure. In the immediate aftermath of yesterday’s meeting it appears the path of least resistance for the euro is one of strength. This does not bode well for the GBPEUR rate which is almost down 5 cents from its recent peak.
We end the week with the US jobs report. The release has taken on extra importance following Wednesday’s shock announcement that only 27K private sector jobs were added in the US last month. Today’s report is released at 13.30 and should ensure we close out the week on a volatile note.
Have a good weekend.
Written by Viv Savani. 8:24am, June 7th 2019
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