Mario Draghi confirms unlimited bond-buying measures by ECB, as focus switches to US labour market

Tom Tong07/Sep/2012Currency Updates

USD

The dollar fell against currencies across the board yesterday following increased risk sentiment as Mario Draghi yesterday pledged unlimited bond-buying to bring down peripheral eurozone sovereign debt yields.

Today, we see crucial labour reports from the US, including the Non-farm payrolls which are forecasted to decrease from 163K to 130K. On the other hand the official government unemployment figure is still forecasted to remain unchanged at 0,8%. Despite initial worries that the labour market would show signs of slowing again today, yesterday’s indicative ADP Non-Farm Employment Change surprised to the upside, coming in at 201k as opposed to a forecast of 142k.

In addition there is a mixed group medium tier employment data to be released later in the day. Ben Bernanke has stated “the lack of jobs growth is a great concern for the US as the jobless rate at held at above 8% since Feb 2009.

EUR

As the benchmark eurozone interest rate was left unchanged at 0.75%, the biggest talking point of the euro yesterday was Draghi’s announcement that the ECB is willing to make unlimited purchases of short term sovereign debt without setting a specific cap on desired yield levels. However, only countries who agreed to the austerity and monetary demands of the European rescue fund will get ECB support. After the announcement the euro hit a two-month high against the greenback.

On the other hand, the central bank also cut their growth forecasts from a range of -0.5% to 0.3% to roughly -0.6% to -0.2% as they believe that there are further risks to growth. As for inflation, they raised their forecasts from 2.3%-2.5% to a range of 2.4% to 2.6% for the year.

Today there is a large quantity of low tier data released from the eurozone and only two medium tier events to look out for. The German Trade balance for July early in the morning and Germany’s industrial production figures for July YoY (which are forecasted to be down by 2.7%) are two to look out for.

GBP

The BOE left policy rates unchanged yesterday at 0.5%, with no speech accompanying the release we have to wait for the rationale behind the decision.

GBP/USD was fairly quiet during the UK trading hours but during the night the pound picked up support and has opened up strong for us today.

Today will be a busy day for the pound as we have a relatively large mix of Low and Medium tier data to be released.

In addition there are two High tier data sets released from the UK; first in line is August inflation data from the bank of England at 9.30am. Then in the afternoon at 3pm the NIESR GDP estimate for august is released; this is an unofficial estimate but serves as a well-respected indicator.

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Written by Tom Tong

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