There were no significant euro moves on Thursday although there was plenty of choppy price action around the European Central Bank’s important monetary policy decision and president Mario Draghi’s press conference.
The ECB made no changes to its negative bank deposit rate of -0.4 per cent, its benchmark interest rate of 0.0 per cent, while monthly purchases of assets will stay at a pace of €80 billion per month which was increased from €60 billion just last month. The ‘forward guidance’ from Draghi suggested no further measures were imminent and that current policy is “working” and just needs time.
The ECB talked very little about the euro and Draghi firmly rebuked question marks that German criticism of the ECB’s negative rates strategy will limit the bank’s ability to issue more monetary stimulus to help fight deflation.
Sterling
UK retail sales data was poor on Thursday, coming in at -1.3 per cent month on month, while UK borrowing data confirmed that UK Chancellor George Osborne now has an even bigger challenge with austerity to reduce Britain’s budget deficit. But the news has had little negative impact on the pound as US President Barack Obama intervened in the Brexit debate.
The President said that Britain was stronger inside the EU as it magnifies Britain’s position in the world. His comments could influence upcoming polls to pull back in favour of the ‘Remain’ camp. The pound’s trade-weighted index rose yesterday to April highs, rebounding further from earlier two-year lows.
Brexit polls are due over the weekend ahead of next week’s UK GDP report on Wednesday. Over the past seven trading days the GBP/EUR rate has risen by nearly 1.8 per cent while the pound has climbed over the same period by 2.8 per cent against the haven Swiss franc and by four per cent against the yen.
US dollar
There will be two important updates next week from the US that will impact Federal Reserve interest rate expectations and US dollar positioning. On Wednesday, the Fed makes its latest monetary policy decision before Thursday’s Q1 GDP report.
The GDP report is expected to show a sharp drop in growth from 1.4 per cent year on year to 0.8 per cent. But it will be interesting to see what guidance on interest rates a ‘global’ Fed issues and whether it tries to suggest that a rate hike in June is a little more probable than the current 20 per cent which the futures market suggests.
On Wednesday, the Fed will issue its decision at 7pm with no press conference scheduled unless there is a highly unlikely interest rate hike. Helping a ‘global’ Fed, the US dollar’s trade-weighted index is near six-month lows while recent news from China has been reasonable. Over the past 30 trading days, the GBP/USD rate has traded between $1.4514 and $1.4004.