The European Central Bank announced policy would be left unchanged, but went on to say that it was in the process of developing a quantitative easing programme.
The dynamics of diverging policy action helped European exporters as they watched the single currency weaken to five-week lows against the US dollar.
German industrial orders data, seen as a precursor to output, will be released, with the orders figures expected to be weaker than last month’s gain, and could continue to weigh on the single currency unless there is an unexpected surprise in the release. The flip side to the euro’s decline is the dollar’s rise in anticipation of the non-farm payrolls data.
While weekly jobless claims were up by 16,000, the news was not bad enough to derail the more positive developments seen in an Ism non-manufacturing survey. The headline release was slightly below forecast, but the employment component rose at its fastest pace on record back into expansion territory.
The news was particularly encouraging given the decline seen in weekly jobless claims over the past couple of weeks. As a result, investors are gearing up for a non-farm payrolls release close to 200,000. Such a release has been priced into markets and might not result in much action in currency markets, which would be more apt to take the dollar higher if something closer to 250,000 is seen.
Clearly, the risk for the dollar is to the downside, if payrolls data fails to meet expectations. In the UK, sterling managed to hold on to gains against the US dollar better than the euro, which has supported sterling against the single currency.
Euro
The euro already found selling pressure going into the ECB meeting despite the better-than-expected retail trade figure. For the record, consumer demand was up instead of a forecasted decline. The data is important when considering the comments made after the ECB’s policy announcement and following a press conference that sent the single currency to five-week lows against the US dollar.
US dollar
The US dollar opened up at five-week highs against the euro and Swiss franc, but was only able to reach this week’s high against sterling.
Positioning started to take place for the release of US non-farm payrolls just as soon as the ECB had announced that interest rates would be left on hold.
Supporting the dollar further was the release of Ism non-manufacturing survey. The survey was slightly below forecast, but still saw a jump to 53.1 from 51.6 seen in the prior month, supporting the view that the central bank could complete tapering of their QE programme by Q4 and raise interest rates by Q1 of next year, which proved supportive for the dollar.
Sterling
The CIPS PMI services survey was disappointing enough to continue to weigh on sterling. Exporters will be happy to see lower/more competitive levels for the coming days. The service sector survey, while lower, still reflected a strong pace of expansion during the first quarter, suggesting the economy grew 0.7 per cent over the past three months.