Europe drove the majors markets yesterday as Mr Draghi decided to keep policy on hold at a 0.25% minimum bid rate, and a 0.00% overnight deposit rate. It appears recent upside surprises in inflation proved solid enough for the ECB to hold off a more accommodative stance.
Nomura said, “this is a pure euro story,” as the ECB also decided against a form of quantitative easing that would normally serve to weaken the euro.
Draghi also raised forecasts for the euro-area’s growth this year and expected inflation to rise gradually, damping bets that policymakers will introduce more monetary stimulus.
A substantial part of the market was expecting some action from the ECB today, or some sign that the central bank will take easing action in the near future. We had neither of those things, which is why the euro is changing hands higher.
US non-farm payrolls are due at 1:30 p.m. today and is expected to hit 149K. The ADP employment figures were poor earlier in the week, and normally serve as a good barometer for today’s data. If the data misses substantially, it could serve to weigh on the dollar.
EUR/USD pushed higher on the ECB’s conference, breaking out of its recent narrow range above strong resistance at $1.3770 and maintained its run to push above the stubborn $1.3820 level. The pair was trading at $1.3871 at 8:40 a.m. in London.
The Bank of England maintained their benchmark rate at 0.5%, while continuing to purchase assets at a £375bn/year pace for the time being. The markets were largely expecting this, so sterling was little changed on the news.
Against the dollar, the pound remained range-bound but did push higher within it, spiking briefly towards $1.6770 before resting around the $1.6740 level. GBP/USD was trading at similar levels this morning, changing hands at $1.6739 at 8:19 a.m. (GMT).
Commerzbank do not rule out further stabs higher, perhaps exceeding the 2014 high of $1.6823 to near the $1.70 level. The firm suspect a downside scenario, viewing a break below $1.6537 opening up the key support around $1.6250.
Conversely, GBP/EUR tumbled as the European Central Bank held fire on a more accommodative monetary strategy. ECB President Mario Draghi was tentatively positive in the post-decision press conference, which served to drive GBP/EUR below €1.21. The pair was trading at €1.2068 at 8:21 a.m. in London.