- EUR/USD
- Commodity Currencies
As was expected, all eyes for the pair were firmly placed on the ECB rate decision and press conference today, with the pair relatively rangebound into the release as dovish expectations were offset by the weaker USD. The ECB kept rates on hold as was unanimously expected, after Draghi last month said that rates had hit their lower bound. The main source of focus on the ECB today was on the press conference with participants awaiting any further details on ABS purchases and any indications towards a potential QE programme in the future given the growth and inflation concerns in the Eurozone. EUR saw initial strength during the opening statement from ECB's Draghi with attention paid to the fact that the ECB continue to see inflation subdued overall and with the ABS plan over 2yrs rather than 1yr, thus lessening the need for immediate QE. Thereafter, EUR/USD continued to remain at its highs as the further details of the ABS purchases left FX markets relatively unmoved as the impact was instead absorbed by fixed income markets. Looking ahead, tomorrow sees the release of a host of Eurozone PMIs which are expected to not deviate too far from the previous given that the core readings are finals.
Commodity currencies were a key focus for FX markets overnight after the beleaguered USD-index extended on yesterday’s losses consequently supporting major USD pairs with commodity-linked currencies being the main beneficiaries. USD/CAD briefly broke below the 1.1100 handle to print a fresh weekly low while NZD/USD recovered all of Tuesday’s RBNZ FX intervention-inspired declines. AUD also strengthened further after AU building approvals surged to a 3-month high (3.0% vs. Exp. 1.0%) prompting AUD/USD to break above the 0.8800 handle. Thereafter, price action for the pairs were dictated by movements in the USD index with a lack of notable economic commentary to provide any further direction. Looking ahead, commodity currencies could once again be a key focus tomorrow with overnight seeing the release of the Chinese non-manufacturing PMI.
GBP/USD saw the session out in negative territory as BoE speakers indicated that the UK is not yet ready for a rate hike. BoE member Forbes signalled that the she was in no rush to raise rates, adding that the GBP rise is a drag on UK trade, growth, jobs and CPI. This was also accompanied by comments from BoE’s Broadbent who echoed the stance of Forbes by saying that the UK was not ready for rate increases as the UK economy still has a higher level of spare capacity than desired. Although there was no immediate reaction to these comments, the dovish stance provided was enough to send GBP lower throughout the session with the pair also shrugging off the better than expected construction PMI (64.2 vs. Exp. 63.5). Furthermore, negative sentiment for the pair also stemmed from comments by S&P’s Kramer who said that the UK could face the possibility of a downgrade if it leaves the EU. Looking ahead, tomorrow sees the release of UK services PMI which is expected to fall to 59 from 60.5 but remain firmly in expansive territory.