ECB remains committed to full quantitative easing program

Enrique Díaz-Álvarez04/Jun/2015Currency Updates


The Pound fell sharply as markets opened yesterday, although recovered as the day progressed to finish just 0.1% lower against the US Dollar.

Sterling’s decline was fuelled by a disappointing reading of the latest services PMI from Markit. While still expanding at a healthy pace, growth in the service sector of the UK economy decelerated at the fastest pace in nearly four years in May. The purchasing managers’ index slipped back to 56.5 from the 59.5 recorded a month previous. While well below market expectations, the figure is not entirely unsurprising given the uncertainty caused by the General Election last month. The data suggests that the UK economy was growing at around 0.4% in May, up very marginally from the 0.3% growth that was registered in the first quarter of the year. Earlier, Nationwide announced that house price growth moderated in May. Prices increased by just 0.3%, up 4.6% on an annualised basis following the previous month’s 5.2% growth.

No surprises are expected from the Bank of England this morning when the central bank announces its interest rate decision for June, following its two day monetary policy committee meeting.


The Euro ended another 1% higher on the Dollar on Wednesday after Greece’s creditors signalled they were ready to compromise in order to avoid a Greek default. Alexis Tsipras meet senior officials in Brussels, where he was presented with terms of new bailout deal.

As expected, Mario Draghi kept yesterday’s ECB monetary policy statement fairly low key, with no new policy measures. The central bank’s assessment of the Eurozone economy remained mostly upbeat, with Draghi reiterating that monetary policy had contributed to a recovery in inflation expectations. The inflation forecast was revised upwards from 0% in 2015 to 0.3%, while growth projections were left unchanged at 1.5%. However, it was emphasised this outlook was conditional on the full implementation of the quantitative easing programme, further dispelling speculation that the Governing Body would cut short its asset purchasing.

There was a string of data releases elsewhere in the Eurozone. The overall unemployment rate fell by 0.1% in April to 11.1%, following an increase in job creation across the board. Service sector growth accelerated last month, slightly better than first thought, with May’s flash PMI increasing from 53.3 to 53.8 and boding well for next month’s unemployment figures, following the fastest rate of job creating in the services sector since November 2010. Retail sales also increased modestly last month by 0.7%, and by an annualised 2.2%, driven by increased sales of petrol and food.

Today looks set to be an unusually quiet day in the Eurozone as far as economic indicator data is concerned. Attention will therefore be firmly on Greece again, just one day before the country’s crucial IMF payment deadline.


Mostly weak data in the US caused the Greenback to fall against its major peers, with the US Dollar index ending 0.5% lower.

The trade deficit in the US narrowed sharply according to the latest figures for April. A 1% increase in exports, combined with a greater than expected 3.3% decline in imports, caused the overall deficit to fall from just over $50.5 billion to $40.9 billion. The deficit spiked in March after a temporary surge, caused by the ending of the West Coast port dispute. Meanwhile, private employers added a total 201,000 jobs in May according to payrolls processor ADP, the most since January. This was largely in line with expectations, although April’s reading was revised down moderately. Service sector growth slowed, with the latest PMI down from 56.4 to 56.2, while ISM’s latest non-manufacturing index plunged to 55.7, its lowest in thirteen months following a slowdown in the mining industry.

No significant announcements in the US today, although jobless claims will be the focus on Thursday, when announced at 1.30pm BST. Traders will instead look to Friday’s crucial labour report, including nonfarm payroll figures and the unemployment rate.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.