GBP/EUR 1.1770 (0.8495)
Despite very little fresh news coming from yesterday’s central bank meetings, we saw some rapid movements in currency markets, most notably in USD crosses and in the JPY, with EURUSD and GBPUSD reaching fresh 3 months highs.
The BOE voted to keep the benchmark interest rate at .50% and maintain asset purchases at £375 bln pounds. This met market expectations and as is often the case with the BOE we will have to wait until they release the minutes of the meeting to see what way the voting went. The pound was looking firmer ahead of the BOE release and certainly is looking to strengthen in the shorter term whilst the threat of further easing remains at bay, this all may change once Carney takes office but the pound is enjoying its time in the sun, for now.
The ECB also had no change to their policy, the benchmark interest rate was held at .50%, we saw no move towards a negative deposit rate or any indication of further policy easing. Mario Draghi did say that they discussed the possibility of negative rates, and several other forms of policy easing and while they are prepared to use what is in their arsenal they are content to wait and see how last month’s rate cut filters through.
Mario Draghi re-iterated his stance that the ECB will do what it takes to support the EUR but with a declining liquidity surplus and inflation thus far undershooting target, the ECB are happy to remain sidelined. Draghi did comment on the difficult operating environment in the Eurozone and highlighted deteriorating growth forecasts, however he did continue to support the view that the Eurozone would begin to show signs of growth later in 2013.
Risk aversion took over in the US session following concerns the pace of growth in the US is slowing. Jobless claims missed their mark slightly and ahead of today’s more important Non Farm Payrolls and Unemployment figures. A reading in line with target, 165k jobs added to the US economy, will fall below the 3 & 6 Month average, currently over 200k, this may well throw water on tapering talk for now and as such we have seen the USD under pressure all week. An improvement in the NFP’s or a reduction in the unemployment rate, expected to be at 7.5% will see this week’s loses for the USD quickly reversed.
Ahead of the NFP’s we have some data from the European session, trade balance data from the UK, industrial production data from Germany and details of early LTRO repayments all are on tap. The LTRO repayment details have helped to support the EUR as it represents a contraction of the ECB balance sheet when other major central banks continue to expand.
We saw a big breakout in ranges yesterday. EURUSD was up close to 250 pips post ECB, with GBPUSD up close to 300 pips at its high. This has sent these pairs to new levels. EURUSD now capped at yesterday’s high at 1.3317 with support below around 1.3150. GBPUSD now capped ahead of 1.5600 despite breaking higher yesterday, support below now at 1.5400. EURGBP looking to test lower having broken the .8500-.8600 range, resistance to the top is now at .8520 with support below at .8480.