GBP/EUR 1.1976 (0.8348)
The ECB stoked the fires for further easing but the EUR paid no heed and rallied to fresh monthly highs against the USD and recovered back above .8350 against GBP. The rationale behind the move higher in EUR crosses can likely be attributed to the uncertainty entering the meeting, markets were unsure of how the ECB would act, risks were skewed to the downside in the markets view, particularly with a negative deposit rate or further LTRO talk earlier in the month, but no action and a less dovish tone from ECB President Mario Draghi helped boost the single currency.
Whilst no action was expected from yesterday’s meeting, many hoped the ECB press conference and minutes would allude to further easing down the line. Draghi did say they were “technically ready” for negative deposit rates, the issue had been discussed again, but only briefly. The ECB rhetoric was broadly similar to past meetings with growth risks still to the downside however they did note the improvements in inflation, albeit their inflation expectations are for it to remain subdued for a prolonged period. Draghi has been the master of verbal intervention since his “do whatever it takes” speech and I can’t help feel that his negative rate talk is just this verbal intervention, letting markets know they are ready to act if conditions do not improve.
The BOE release was the total opposite to the ECB and as such, had less volatility surrounding it, rates and Asset Purchase targets were held at .5% and £375bln respectively, and no accompanying statement was released. The pound was down across the board yesterday as the autumn statement followed the BOE release. This confirmed the UK economy was growing at a greater pace than expected when we had the March budget released, this however does not bring forward their expectations for a rate hike, with growth expected to level out in time.
The USD got a lift yesterday as we approach today’s Non Farm Payrolls. Despite losing ground against the EUR the USD was firm following better than expected Q3 GDP figures, showing the economy grew 3.6% annualised from 3.1% expected. Factory orders declined by less than expected and jobless claims fell below 300k, beating expectations of 320k print. USD data has been firm of late and with each release we see a brief USD rally. This has led to expectations of a stronger than expected NFP print, estimates are in the 185k region, anything less than this figure is likely to send the USD deep into selling territory, and likely give stocks a lift into Christmas after experiencing a weak start to December.