Market News & Insights
7 November 2014

Draghi Presents United ECB Front

EUR/USD 1.2392
GBP/USD 1.5830
GBP/EUR 1.2768 (0.7831)
EUR/CHF 1.2040
GBP/CHF 1.5377
GBP/AUD 1.8424

As expected the ECB kept interest rates on hold at their record low 0.05%, reaffirming that they were waiting to see how measures already implemented unfold. However Draghi suggested the bank could act to prevent dangerous deflation with the ECB ready to pump levels which were likely to reach dimensions it had at the beginning of 2012. This would suggest a target of €1tn (£782bn) of fresh stimulus could be pumped into the stuttering Eurozone economy.

Draghi also doused cold water on recent concerns around his leadership style. It emerged earlier in the week that the national central bankers in the euro area planned to challenge the Italian over his communication style and previous comments relating to the amount of money the bank aimed to pump into the economy. However he presented a united front yesterday stating the bank’s governing council was unanimously willing to use more unconventional measures.

With Eurozone inflation at 0.4% and far short of the central bank’s target of close to 2%, the Italian acknowledged that the recovery remained skewed. Many economists are now looking towards December when the ECB will update its economic projections, however with German data dropping off of late, we could see even more woes for the single currency.

After the ECB and euro commanded centre stage yesterday, today sees the US economy step back into the limelight as the first Friday of the month sees the monthly payroll and employment data released from across the water at lunchtime today. Market consensus expects a further 235,000 jobs were added by US employers in October. Whilst such a reading would be down from the previous month’s impressive reading of 248,000, it would still represent a level above the year’s average of 226,670. So whilst a notoriously volatile key data release that is open to prior month revisions too, at least maintaining that average figure is likely to determine whether the release is seen in a positive or negative context, as it will help show whether the US economy is maintaining recent momentum. Due for release at the same time too, the unemployment rate is expected to remain steady at 5.9%.

From a currency perspective, the US Dollar has put in another impressive week heading for its biggest weekly gain in more than sixteen months with the greenback approaching a seven year high against the Japanese Yen. Versus its European peers, the US Dollar also hit fresh highs. Versus the pound, GBPUSD continued to fall lower hitting levels not seen since September 2013 after lows of 1.5813 were seen. Similarly, versus the single currency EURUSD further fell hitting a 1.2361 low in late US trading yesterday representing levels not seen since August 2012.