Draghi’s dovish ECB statement causes chaos in global markets

Claire Hogarth07/Nov/2014Currency Updates

GBP

After the Bank of England announcement, the pound fell throughout the day against the dollar losing 0.85% overall. After rising against the euro by as much as 0.75% after the ECB’s monetary policy statement, the pound ended the day unchanged against the single currency.

As expected the Bank of England maintained its benchmark interest at its record low level of 0.5% yesterday. The central bank also decided to maintain the £375 bn asset purchase facility. Again, this was widely expected. The announcement caused the pound to fall against its peers, although this was overshadowed by the ECB release. Elsewhere, industrial production for September came in above expectations at 0.6% MoM, while the annualised figure of 1.5% marked the thirteenth consecutive month of year on year growth in industrial output. Encouragingly for the UK economy the manufacturing output also increased above expectations by 2.9% YoY, having climbed 0.4% in September.

The day’s main announcement in the UK will be this morning with the release of trade balance data at 9:30am.

EUR

The single currency suffered a blow yesterday plummeting by 0.8% on the dollar after the ECB’s monthly announcement.

Attention of the world markets was firmly on Frankfurt today and the monetary policy statement delivered by ECB President Mario Draghi. In a dovish statement, Draghi stated interest rates were to be kept unchanged at 0.05% and, as expected, it was announced that the ECB had started to buy covered bonds, a decision that was taken last month. Asset-backed securities will also be bought “soon”, with these programmes lasting at least two years and having a “sizable impact” on the balance sheet. He reiterated that the governing council is unanimously committed to taking further unconventional measures if required, and that these measures would gradually return inflation to the target level of 2%.

A lower key day in Europe today with the main announcements coming from Germany with the release of the trade balance and industrial production figures for September.

USD

The dollar benefitted from Draghi’s comments during afternoon trading yesterday, with the US Dollar index rising by 0.75%, its fourth consecutive day of climbs, reaching a four year high in the process.

Dwarfed by the ECB announcement yesterday was the release of some more promising employment data in the US. The four week average jobless claims fell further to a new fourteen year low, dropping 10,000 to a seasonally adjusted 278,000 for the week ending 1st November. This was 7,000 below forecast, with claims now remaining below the 300,000 threshold for eight straight weeks, suggesting that employment growth is gaining considerable momentum in the country.

More volatility in the US market expected today with a couple of significant announcements. At 1.30pm London time the US Department of Labor will be releasing the Nonfarm payrolls for October, followed by the official unemployment rate which is predicted to remain stable after a series of declines in 2014.

Rest of the world

Brazil’s real fell to fresh nine year lows after the central bank indicated that it won’t step up increases in borrowing costs, which made local assets less attractive to global investors. The currency fell by 1.6% against the dollar during trading on Thursday. Elsewhere, the Czech central bank maintained its interest rate of 0.05% for an eighth consecutive meeting and capped 12 months of quantitative easing causing the Krona to fall by one percent on the US dollar during trading.

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Written by Claire Hogarth

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