Mario Draghi announces sweeping easing measures

Claire Hogarth06/Jun/2014Currency Updates

EUR

Mario Draghi didn’t disappoint yesterday, implementing a seismic shift in the European Central Bank’s monetary policy. The headline figures do not give the impression of particularly loose policy, indeed they were less drastic than many commentators predicted.

The main rate was cut from 0.25% to a record low of 0.15%, against consensus of 0.1%, while the deposit rate was lowered from 0 to minus 0.1%, the first time this kind of measure has been implemented by any of the ‘big four’ central banks, the BoE, Fed, BoJ and ECB.

More importantly, the marginal lending facility was cut by a full 0.35 to 0.4%, and a new $400bn QE programme was unveiled. One of the lingering phrases that will be hanging in the air is ‘we are not finished’. Watch this space.

One of the issues that Draghi has had to face over the last year is a defiantly strong euro making European goods relatively expensive and hampering a recovery. He will be therefore have been disappointed to see the euro bounce straight back after the initial drop. The single currency is even against the pound and actually to the upside against the dollar.

There is a lot of debate as to whether the measures announced by Draghi go far enough – a definitive answer will not be had for at least another quarter.

GBP

The pound initially skyrocketed up after Draghi’s announcement, but retraced over the afternoon session to end at even. A strong showing against the dollar lent support to the tune of 0.6 cents, and there was no retracement overnight, which puts cable at its highest point for two weeks.

The UK had its own interest rate decision to focus on yesterday, although it did pass by rather uneventfully. Carney has kept interest rates at 0.5% and made no changes to asset purchases.

No data of note yesterday after house prices were released in the morning and only a scattering of mid-tier macro data due today.

USD

Similarly to the pound, the greenback took points off the euro early on but fell back in the afternoon. Overnight it plateaued to record only a slight gain for the week, despite the euro weakness.

Initial jobless claims were slightly over expectation, at 213k, but continuing claims dropped off again to 2.603m. The key play of course is today’s NFP figures, which are expected at 212k. That will be the fourth consecutive monthly showing of +200K, which hasn’t been achieved since the boom years of the late 90s.

There is also a more general unemployment rate, as well as hourly earnings.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.