ECB meeting puts pressure on Euro

ECB Meeting

Yesterday’s currency market headlines were dominated by the European Central Bank as Mario Draghi gave a speech following the latest interest decision announcement. There were 4 key points to take from this speech:

1. Rates are to be kept unchanged at record low levels until the end of 2019 at very least and will remain unchanged for as long as necessary to ensure inflation levels are below, but close to 2%
2. ECB will continue to re-invest under the asset-purchase program for an extended timeframe, and beyond any changes to interest rates
3. ECB to launch a new quarterly refinancing operation (TLTRO-3), starting Sept 2019 and running to March 2021
4. ECB to continue fixed-rate lending to banks for as long as necessary, and at least until March 2021

These central bank decisions were announced as Mario Draghi conceded that growth in 2019 is to be downgraded substantially from Decembers projections, with the expectation now at just 1.1% for the year and 1.6% in 2020. The above measures are simply tools to aid the banking system through increasingly difficult economic times, and the effect on the Euro is a rather negative one. EUR/USD dropped post meeting to the lowest levels seen since June 2017 whilst breaking below a 5 month long stable range, and GBP/EUR recovered nearly a cent throughout the afternoon bringing rates back towards a 21 month high.

Brexit

Sterling markets remain relatively muted as most traders look to take profits ahead of next week’s key votes in parliament. There are currently 4 possible outcomes from next week, all with varying impacts on Sterling’s value.

1. Theresa May’s deal passes on Tuesday and Brexit is agreed. Markets likely take some short term positivity from this.
2. After voting down Theresa May’s deal, parliament votes for a no deal on Wednesday and Sterling value likely plummets 10-15% in the coming weeks
3. Parliament votes AGAINST no deal Brexit and subsequently approves an extension to Article 50 on Thursday. The saga goes on…
4. Parliament rejects no deal, and also rejects an extension to Article 50, likely leading to new alternatives (2^nd vote, election etc)

For those not wishing to gamble their hard earned money over these events, may wish to consider their options in the coming days for fixing your rate. If you are feeling more speculative then talk to your currency consultant about our STOP LOSSES and LIMIT ORDERS to help you manage your risk.

The Day Ahead

Today the focus switches from the Euro, and across the pond to the US when at 1:30 pm the highly volatile Non-farm payrolls announcement will be made. Forecasts are for a much weaker figure than last month, and we can expect traders to react instantly to the figures given the Federal Reserve is currently in “hyper-data dependence mode” with regards to any future rate changes. At the same time, Canada will also announce its unemployment rate figures.