Markets send Euro higher as ECB delays further easing measures to next year

Claire Hogarth05/Dec/2014Currency Updates

GBP

Market volatility on Thursday was driven almost exclusively by the ECB’s monetary policy statement, which caused Sterling to fall by 0.7% on the Euro, although the UK currency was able to strengthen by 0.1% on greenback during London trading.

As expected, the Bank of England maintained its record low benchmark interest rate at 0.5% for the 69th consecutive month. The Monetary Policy Committee also decided to keep the size of the economic stimulus programme unchanged at £375bn, again, as was widely predicted, and as such the market reaction was muted. In other news, Halifax announced that their measure of house prices increased by 0.4% in November to 8.2% YoY, slightly above expectations.

Only the one major data release in the UK today as the Bank of England announces its quarterly Consumer Inflation Expectations at 9.30am.

EUR

The single currency rallied against its peers yesterday, climbing substantially on the Pound and by 0.6% on the Dollar over the course of the day.

The main event on Thursday took place in Frankfurt in early afternoon as ECB President Draghi released the central bank’s monetary policy statement. As with the BoE, no surprises in the interest rate decision which was maintained at 0.05%, although the overall tone of the press conference was mixed. Growth forecasts were slashed yet again, revised down to just 0.8% in 2014 and a mere 1.0% in 2015. Inflation forecasts, while not accounting for the recent drop in oil prices, were also reduced to 0.5% this year and 0.7% in 2015.

The ECB did, however, disappoint our expectations and refused to set a date for quantitative easing, only stating the need for this will be “reassessed in 2015”. The Euro rallied on these comments, although lost ground towards the end of the press conference on the word that the ECB would consider purchases of any and all assets, except precious metals.

Relatively few data releases in the Eurozone today, although Eurostat will be announcing the final GDP growth figures for the Eurozone at 10am GMT, with a slight month on month increase predicted.

USD

The Dollar fell by 0.65% against its major peers on Thursday, mainly due to the market reaction from the ECB statement.

Initial jobless claims slipped back below 300,000 after spiking last month. The figure of 297,000 released by the US Department of Labor means that the four week average for jobless claims has now plummeted by 9% over the past twelve months. While slightly above forecast, the data reaffirms the strong tailwinds supporting the US labour market. Elsewhere, FOMC member Loretta Mester announced that she believed an interest rate move by the Federal Reserve would come at some point in the summer, slightly later than we forecast. She expects growth of around 3% over the next couple of years, with the recent slump in oil prices dragging down inflation in the short term.

Today will see a string of data releases in the US, headlined by the announcement of the unemployment rate and nonfarm payrolls at 1.30pm London time.

Rest of the world

The Central Bank of Brazil once again raised its benchmark interest rate, this time by 50 basis points to 11.75%, the highest level since 2011. This marked the second increase in less than two months, surprising markets somewhat, that mostly expected a 25 basis points jump. Meanwhile, the Japanese Yen fell further yesterday reaching its lowest level against the Dollar since July 2007. The currency has now plunged by 9% since the Bank of Japan increased its monetary stimulus measures in October.

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Written by Claire Hogarth

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