Thursday saw the single currency hold onto recent gains after the European Central Bank (ECB) kept rates on hold at their latest policy meeting, in a move that surprised and disappointed some market participants.
Mario Draghi, ECB president indicated a further shift in forward guidance with interest rates expected to remain at current levels or lower at least through the first half of 2020, although the bank were prepared to cut rates at their next policy meeting in September.
He went on to indicate the need for the bank to offer a highly accommodative monetary policy and cited other options for easing, which could include government bond purchases and a revamped policy message.
Subsequently the euro traded at $1.1151 against the dollar, a mild recovery from a two-month low of $1.1102. However, the euro was down 0.6% this week. This came alongside German IFO business confidence data that printed down at 95.7 from the previous month of 97.5 and further highlights the economic challenges faced by the Germans.
The focus now moves to the US and the Federal reserve policy meeting next week. Futures markets have priced in a 100% chance that they will cut interest rates by 25 basis points, moving their target range to 2.00%-2.25%.
Data due later on Friday is expected to show U.S. economic growth slowed to 1.8% in the second quarter from 3.1% in the previous quarter, further bolstering the argument for the cut. However, some feel that this loosening of Fed policy is merely a one off and not the start of a major easing cycle.
This saw the U.S. dollar trade at 108.620 yen, near a two-week high of 108.755 yen, as expectation grows for the move next week, that many feel is a positive move by the Fed to ward off the global growth issues affecting other economies.
Elsewhere, sterling moved down to 1.2430 against the dollar overnight and is on course to end the week 0.5% down against the greenback. The pound has seen some stability this week, since the appointment of Boris Johnson as the new Prime Minister. However, uncertainty around EU withdrawal negotiations is stunting any sterling growth, with EU Chief negotiator, Michel Barnier claiming the UK was trying to split EU governments.
Today’s data focus is US advance quarter on quarter GDP which shows the annualised change in the inflation-adjusted value of all goods and services produced by the economy, expected to print at 1.8%.
Markets await ECB policy meeting
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