NFP figures and Draghi make waves in the market

Claire Hogarth04/Jul/2014Currency Updates

A volatile day in currency markets saw sterling up on the euro, down on the dollar, and the dollar up on the euro. US NFPs were bullish, Draghi was dovish, and the Swedish Central bank delivered a surprise rate cut.

GBP

The pound rallied against the euro for the fourth consecutive day, while it remained remarkably resistant to dollar pressure. No data from the UK yesterday other than early retail sales, which came in just under par, meant sterling had to take its lead from events elsewhere around the globe. Poor EU data early on and a classically dovish speech from Mario Draghi later on lent massive support to the pound, pushing GBP/EUR up 0.5%. Particularly strong US employment data was the talk of the town during the afternoon session, but sterling withstood the pressure to end pretty much even.

With the US on holiday today volumes will naturally be lighter so there is likely to be a lack of trend in the market, but we could still see pivots on UK data, with house prices out this morning.

EUR

Yesterday of course was all about the ECB. The markets didn’t expect anything untoward and in fact the announcement was pretty much as expected, no cut in interest rates and no start to asset purchasing yet. Draghi was in a particularly dovish mood, stating explicitly that ‘interest rates will remain low for an extended period of time’. While there will be no movement in interest rates for a few months yet, the ECB could begin US style asset purchases as early as next month, a scheme designed essentially to get more cash circulating through the economy.

Draghi also weighed in on the monetary policy vs financial stability argument that has come to the surface this week. He sided with Yellen, saying that while he is sensitive to financial risk, ECB monetary policy is conducted with long term macro-economic objectives in mind.

The EU also saw retail sales come out poorly in the morning, which, combined with the lunchtime press conference, heaped a load of pressure on the single currency, driving it down right across the board. The euro is now heavily down for the week, a trend which finally looks set to continue. No data out today.

USD

All eyes were on the US yesterday ahead of June NFPs, and they certainly didn’t disappoint. A remarkable 288k jobs were added in June, the most since 2010, which, combined with an upward revision of the previous two months, took the quarterly rolling average to 272k. Unemployment is now down to 6.1%, the lowest since the collapse of Lehman Brothers back in 2008. More importantly, there was a significant decline in the group who identify as long term unemployed, a sign that the jobs being created are full time, long term positions.

Three consecutive months of strong employment surely now allays any fears that the Q1 blip was anything more than just that; we think the US will now see between 3.5 and 4% growth for Q2.

It will be interesting over the next couple of months to see which of the Fed and the BoE blinks first in raising interest rates. The US is in holiday today so no data expected.

Elsewhere

The Swedish Central bank, the Riksbank, yesterday revealed a surprise cut in the interest rate from 0.75% to 0.25%, over fears of disinflation and stagnant growth. The decision was all the more interesting for the fact that the typically hawkish Governor of the bank, Stefan Ingves, was outvoted. He had only recommended reducing the rate by 0.25%.

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Written by Claire Hogarth

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