Dovish Mario Draghi sends the Euro lower on hints of more QE

Enrique Díaz-Álvarez04/Sep/2015Currency Updates


Dovish commentary from the ECB sent the Pound higher by 0.85% against the Euro yesterday, although it ended 0.15% lower versus the Greenback following more encouraging data in the US.

The only announcement in the UK economy yesterday came from Markit, with the latest flash services PMI. Service sector growth disappointed expectations, with the index falling from 57.4 to 55.6. This means that all three PMI surveys this week, construction, manufacturing and services, have all come in below forecasts. Even allowing for seasonal influences, the reading was particularly low, reaching its lowest level in more than two years. The very closely watched survey suggests that economic growth would likely slow towards the 0.5% level, having registered 0.7% quarter-on-quarter between April and June. This will not be good news to the Bank of England hawks, with many economists and analysts already pushing back their expectations for an interest rate hike in the UK given weakness in the global economy.

No major announcements or data releases in the UK to end the week means that attention will be firmly on this afternoon’s nonfarm payroll release in the US.


The Euro plunged against its major peers yesterday, depreciating sharply by 1% against the US Dollar after very dovish commentary from President of the European Central Bank Mario Draghi.

Mario Draghi sent the Euro tumbling yesterday by slashing both inflation and growth forecasts for the Eurozone, and opening the door to further quantitative easing measures. Speaking at the central bank’s press conference following its monetary policy meeting, Draghi hinted that its current quantitative easing programme, launched in March, could be expanded given recent downside risks, namely events in China, particularly following ‘Black Monday’. The ECB has, as yet, not decided how its QE programme could be expanded, although Draghi suggested that the programme could be extended beyond its original September 2016 end date. The thoroughly dovish statement saw a downward revision in growth forecasts, which were cut from 1.5% in 2015 to 1.4%, and a reduction in inflation expectations from 0.3% to 0.1%.

Earlier, retail sales surprised on the upside, increasing by 2.7% in the year to July. The latest flash services PMI also impressed, rising by 54.3 to 54.4. Today the Eurozone will be releasing the next revision of GDP growth for the second quarter at 10am BST, likely to remain unchanged at 1.2% on an annualised basis.


The Dollar was given a boost yesterday by Mario Draghi’s dovish statement. As a result, the US Dollar index increased by 0.5%.

The main data point in the US economy yesterday was the release of the latest trade balance figure, which narrowed more than expected in July. The deficit reduced from a revised $45.2 billion in June to $41.9 billion, it’s smallest since February. This was primarily due to a 1.1% decrease in total imports, with nominal exports of goods and services also increasing by 0.4%. Meanwhile, growth in the non-manufacturing sector continues to impress, with the latest PMI from ISM coming in above forecasts at 59.0, due primarily to resilient domestic demand in the US.

Initial jobless claims unexpectedly increased last week. Jobless claims rose from 270,000 to 282,000, and while disappointing expectations, still remains at a remarkably robust level. The much more representative four-week moving average, which irons out week-to-week volatility, climbed very marginally, up by around 3,000 to 275,500. Jobless claims continue to print well below the benchmark 300,000 level, providing further evidence of a tightening in the labour market and giving additional weight to our argument that the Fed’s current emergency level monetary policy settings are no longer appropriate.

Today looks to be a crucial day for the US economy, with the release of the monthly labour report from the US Department of Labor, of which of course includes the latest nonfarm payroll figure. As always, this will be closely followed by traders today, and could cause significant volatility in the Dollar.


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.