Dovish Mark Carney sends sterling plummeting, as US re-opens ahead of crucial non-farm employment figures

Tom Tong05/Jul/2013Currency Updates

USD

The Dollar rose against both the sterling and the euro yesterday however this was off the back of central bank developments out of the Bank Of England and the European Central bank respectively.

American equities markets were closed yesterday for the 4th of July celebrations however all eyes today will be focused on the monthly non-farm payrolls which are due to be released today. The consensus for this is to be 165K which is lower than last months 175K. This is a bearish view on the US jobs market so could potentially make up for some of the lost ground in GBP/USD from yesterday.

EUR

The main reasons for the drops by the euro on Thursday were that the European Central Bank and the Bank of England each indicated there were no plans to reduce stimulus. Mario Draghi’s press conference on Thursday said euro-zone interest rates will remain low.

The governing council anticipates these levels to remain at their present low, or decrease further for an extended period. This is a move to reassure concerns in the Eurozone caused by the political crisis in Portugal. They have stated that they intend to keep borrowing costs low for as long as needed to help boost the struggling economies of the Eurozone.

With regards to economic data out of Europe, we are set to see factory orders (YoY) out of Germany later this morning.

GBP

At Mark Carney’s first meeting as head of the Bank of England he took the unusual step of releasing a statement along with his decision to keep interest rates and quantitative easing levels of 0.5% and £375 billion the same. The release said: “The implied rise in the expected future path of Bank Rate was not warranted by recent developments in the domestic economy”. Analysts on the issue have joined in agreeing that this points to a continuation of monetary easing policy. Carney may be planning to use a policy called threshold targeting (similar to the US Federal Reserve) which links interest rates to the rates of unemployment.

The pound fell against effectively every single currency yesterday with a drop of 1.35% against the dollar and 0.65% against the euro.

There are no significant data releases out of the United Kingdom today.

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Written by Tom Tong

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