ECB Hold Rate Firm But QE Not Discarded

4 April, 2014

Simon Eastman

Yesterday we had all eyes on Mario Draghi and the ECB as they held their monthly interest rate setting meeting and press conference. Some had been expecting a chance of them cutting interest rates by maybe 10 or 15 basis points, having not cut them last month which was widely expected but when it didnt happen, we saw the euro make gains against all currencies, making sending money overseas for that purchase in the European sun, a fair amount more expensive.

Having seen a “no change” stance again, we were left looking towards the press conference later in the day. Mario Draghi proceeded to confirm inflation is in line with expectations and the Eurozone is growing within the levels they expected. This initially gave the euro strength but when he confirmed the board had not ruled out further asset purchasing (the Quantitative Easing program) the market swung the other way as traders sold off the single currency. The pound gained half a cent and the big winner was the US dollar which gained nearly a cent.

The US data in the afternoon was adversely dollar positive, with jobless claims and trade balance missing expectations but with the euro in decline, trades preferred to support the greenback and the dollar held firm. The Americans neighbours saw the Canadian dollar continue to strengthen, which has been the trend of late, following the release of international trade figures which were all comfortably above forecasts. The CAD has strengthened against sterling by nearly 2 percent over the past 2 weeks, making sending money to Canada more costly for us Brits.

So on to today, which is a little light on data with no releases for the UK and just German factory orders for the EU. We could see sideways trading for sterling/euro but then nothing is certain in the forex markets. This afternoon sees the release of Canadian unemployment rate and net change of employment which is positive could see the strengthening trend for the Loonie continue whilst in the US, the eagerly awaited US non-farm payrolls, hourly earnings and unemployment data which can often move the markets wildly, so make sure youre in touch with your CI broker after lunch if you have any overseas payments to make which could be affected.