Euro regains ground after ECB interest rate announcement

Claire Hogarth03/Oct/2014Currency Updates

Some respite for the single currency during trading on Thursday, as the Euro regained ground on both the Dollar and the Pound, after a period of continual decline during September. The main event for the day was the ECB maintaining its benchmark interest rate of 0.05% as expected.

GBP

Sterling depreciated on the Dollar for a seventh day by 0.4%, after the Bank of England policy maker, Ben Broadbent, had suggested that the recovery of the UK economy may not yet be sufficient enough to justify an interest rate hike. This fall in the Pound was in spite of Construction PMI coming in above expectations for a fourth month in a row and reaching its highest level since January at 64.2.

A day of limited data releases in the UK today, with the only announcement the Services PMI for September at 9:30am. UK markets will already have one eye on next week with the GDP estimate and interest rate decision, on Wednesday and Thursday respectively.

EUR

The Euro regained some ground on Sterling and the greenback, hitting its strongest position against both of the major currencies this week and rising by the most since May. This bucked the trend from September where the Euro fell by 2.5% against GBP and by 4.5% against USD. The single currency rose by 0.25% during the day on the Dollar and substantially on the Pound by 0.7%.

The major announcement of the day came from Naples as the European Central Bank announced its interest rate decision, with the record low rate of 0.05% remaining in place as anticipated. President Draghi failed to provide any details on the size of a plan to buy private securities, after it was announced that the ECB is going to be expanding its balance sheet by buying covered bonds this months and asset backed securities by the end of the year. The ECB will, however, be buying assets for “at least two years” according to Draghi in a bid to boost economic growth and inflation to a level close to, but just below, 2%.

Markit Economics will be releasing its services PMI data for the major European economies tomorrow while, at 10:00am, Eurostat will announce Retail Sales for August within the Eurozone with a bearish reading expected.

USD

More promising data came out of the US yesterday as the number of individuals in the economy receiving unemployment benefits continued decreasing and fell by 45,000 to 2.398 million, a drop much greater than economists had expected. Despite falling on the Euro after the ECB announcement, the Dollar strengthened substantially against the Pound and reached its strongest position versus the UK currency in over three weeks. The US Dollar Index meanwhile fell during early trading before regaining ground to finish the day where it started.

Three significant announcements in the States today are the 1:30pm (London time) release of Nonfarm Payrolls from the US Department of Labor in Washington, a measure of the number of people on the payrolls of non-agricultural businesses, and also the unemployment rate for September. Later in the day at 3:00pm the Institute of Supply Management will announce the Non-Manufacturing PMI, with a bullish reading predicted.

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Written by Claire Hogarth

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