If the European Central Bank declines to take action for another month in the meeting, the chances for reaching 1.40 against the US dollar are heightened rather quickly. Prior to the ECB announcement, PMI services data will be released alongside retail sales. The data could prompt some last minute positioning. In the US, economic data released on the jobs market helped to limit the dollar’s downside. The dollar was lifted when an ADP employment report came out showing nearly 200,000 new jobs created. Factory orders also rose above forecast, but attention now slowly turns to non-farm payrolls data which is due out. Stronger economic data that suggests a Q1 2015 rate increase would continue to limit the dollar’s downside. Sterling shrugged off slightly weaker construction PMI figures. The PMI survey remained in extremely healthy expansive territory, such that a small dip was not damaging, particularly since optimism over the outlook for the sector remained high.
Sterling
The CIPS PMI construction survey came in below forecast, but was still in strong expansion territory. Further investors were cheered by the optimism surrounding the sector’s outlook. Sterling is already benefitting from comments made by the head of the central bank. Carney said that rate increases could come before the 2015 election in an interview, which is what markets are grabbing onto, but in reality the comments have been taken a bit out of context. Rather he said that he could not rule a rate hike out. At any rate, sterling is benefitting and momentum could come from the release of PMI services.
US dollar
ADP employment and factory orders revealed an improving economy, which gave the dollar a boost in the session. A shrinking trade deficit, expanding services and steady jobless claims could be just what the dollar needs to find momentum behind the gains. Bata will be initially overshadowed by the ECB’s policy announcement and Draghi’s press conference and after that attention swings to non-farm payrolls.
Euro
Eurozone pipeline inflation figures remained in negative territory according to economic data released. The data continued to call into question the outlook for the ECB policy meeting. The ECB could make deposit rates negative, could conduct asset purchases without sterilizing them, could conduct another LTRO, or lower the main refinancing rate. Of these four options, purchasing assets without sterilizing the purchases could be legally tricky. Negative rates are considered ‘unchartered’ territory, while a rate cut would take that option to the bottom of its barrel. So while the ECB says there are ‘plenty’ tools in their kit, in reality none of them are great and there is this feeling that the euro is holding back on additional gains, just in order to get through the press conference.