GBP/EUR 1.3848 (0.7221)
Central banks took most of the focus during yesterday and while the BOE celebrated the 6th anniversary of their last rate cut (2009) by doing absolutely nothing, the ECB’s post announcements press conference provided a little more to shout about, literally. The general tone taken from Yesterday’ ECB meeting was dovish, and whilst Mario Draghi revised up growth and inflation expectations, this was done so on the basis of the current QE program running its course right through to September 2016. It was not plain sailing for Draghi as he faced down vocal heckling from a Greek journalist which is about as exciting and ECB press conferences get. The dovish and the promise of long term easing from the ECB helped support risk appetite which helped Eurozone shares edge higher on the day, while not surprisingly the EUR was under selling pressures, EURUSD finally dropping below the 1.1000 level.
The tone in the US was once again supportive of equities, although gains were limited stocks did halt two days of declines. We have seen record positioning in long USD positions in recent months and the USD index continues to trade at 12 year highs as markets expect the Fed to begin raising rates by mid-summer. This brings US labour market data into focus, once again we still see the US recovery as mixed, and while we have seen consistent labour market growth other data has tended to be below expectations. Yesterday weekly jobless claims were worse than expected, while factory orders declined. Today’s NFP release is expected to show February’s labour market growth slowed to 235K from 357K in January. A print in excess of 200k however is likely to still see support for the USD in the longer term. Attention will also be paid to the average hourly earnings figure to judge slack in the economy.
EURUSD broke through 1.1000 yesterday evening after the European close and the downside has continued this morning with EUR facing selling across the board, EURGBP also breaking to fresh 8 year lows while EURUSD is trading at levels not seen since September 2003. Despite Mario Draghi’s upward revision to growth and inflation outlooks, the EUR has little to support it as long as huge scale QE is ongoing. We continue to see Eurozone peripheral yields in decline and despite some evidence that deflation and growth may have bottomed out in the region the recovery is likely to be slow and gradual.