ECB Cuts Interest Rates

Thursday was all about Europe, as the markets eagerly awaited the lunchtime announcement from the European Central Bank. Rumours had been rife that we’d see a rate cut, firmed up by one member stating they would be looking to cut rates in a statement last week. So this past week much speculation was on the cards as to whether they would or not.

The consensus amongst investors was they would, so as we normally see with these rumours, the markets had priced it in. By lunchtime, the pound was already on the front foot as we had manufacturing PMI data out for the UK in the morning coming out better than expected. So when the ECB announced a 25 basis point cut, the pound/euro rates actually fell a little as the overpricing corrected itself.

This wasn’t the main event though, as always, the subsequent press conference is where the action happens and it didn’t disappoint. Mario Draghi when pressed, hinted they would be considering all future data releases carefully when making the decision as to whether or not, to cut interest rates further. This was a nail in the euros coffin, as investors sold off the single currency to reflect such future moves by the ECB. The euro lost a cent against the pound and the US dollar immediately and stayed at these levels for the rest of trading providing great buying opportunities for those looking to buy in Europe. The US dollar on the other hand managed to strengthen off the back of the euros weakness, as is often the case with these two currencies (as described often as the “currency see-saw”).

So what will today bring? More volatility is the answer, as we have some key data releases to come. UK services PMI this morning could give the pound a boost, if like the other two PMI’s, it comes out better than expected. We also have the European Commission’s economic growth forecast and PPI inflation reports from the Eurozone and later on at lunchtime the all important employment data from the US, including non-farm payrolls which can cause great fluctuations in the markets. All these releases can cause movement with the pound/euro/dollar, with each affecting the other so if you have a requirement coming up, and missed the great opportunities yesterday brought, get in touch with one of the brokers at Currency Index today to keep up to speed.