The European Central Bank announced no changes to monetary policy despite a marked deterioration of euro zone economic indicators in recent weeks. Surprisingly, President Mario Draghi offered no clear signs of further easing, suggesting that previously introduced liquidity operations should help stabilise the euro zone economy over the coming months. Sterling’s move higher prior to the announcement did not reflect fundamentals after data showing UK house prices fell in March and growth in Britain’s key services sector slowed in April. However, Cable did fall with the US dollar attracting more safe haven flows from Europe’s precarious growth and fiscal outlook.
The Swiss franc also lost more ground against its US rival but, Swiss retail sales data, which is forecast to show improved domestic demand, may put the so-called “Swissie” back into play in currency markets. The euro is likely to face some pre-elections pressure with investors fore casting euro area service sector PMI data to remain negative for a third month. However, all-eyes will be on blockbuster US non-farm payrolls data which could go along way towards substantiating speculation around the Federal Reserve’s quantitative easing plans.
Sterling
The pound was pressured by a report from Nationwide highlighting another fall in UK house prices in March. Still, there were some positives for investors to take away from the PMI data. The gauge indicated another month of growth, albeit at a more sluggish pace, while the survey’s business optimism outlook rose to two-year highs.
US dollar
Despite uncertainty going into blockbuster US non-farm payrolls data, the refuge US dollar attracted more buyers than sellers as investors turned noticeably cautious ahead of elections in France that may eventually undermine the euro region’s austerity efforts.. Although this would represent an increase from March’s 120k, the number would still fall short of the 200k-mark which, according to analysts, is needed to help bring the nation’s overall jobless rate down.
Euro
The euro came under significant pressure in the lead up to European Central Bank policy announcement, edging closer to a two-year low versus its British rival on expectations policy makers would hint at looser monetary controls. The euro’s bounce stopped short of a rally though, with investors bracing themselves for elections in both Greece and France where management changes may lead to a re-negotiation of fiscal controls that had been introduced at the height of the debt crisis in 2011.