The European Central Bank (ECB) pushed back plans to raise interest rates until at least the middle of next year. However, President Mario Draghi said, “Geopolitical uncertainties, rising protectionism threats and vulnerabilities in emerging markets are leaving their mark on economic sentiment”. He also said the ECB was “determined to act in case of adverse contingencies” and some policymakers had raised the possibility of interest rate cuts and restarting its quantitative easing programme.
Flying in the face of his dovish comments, Draghi also announced further details about the targeted longer-term refinancing operation that is due to begin in September. Banks will be able to borrow funds from the ECB at better-than-market rates, 10 basis points above the normal refinancing rate, rather than 20 basis points below that. The news caused the Euro to rally against the Dollar, which initially reached $1.1300 but soon retreated when markets digested Draghi’s comments.
Today the US will release non-farm payroll (NFP) employment data, which is forecast to have dropped to 185,000 new jobs added in May compared to 263,000 in April. However, the Dollar could have a shaky afternoon. The ADP’s private payrolls data released on Wednesday, 5 June only increased by 27,000 in May, a substantial drop from 275,000 in April and against a forecast of 180,000 new positions.
If the NFP release comes in as dramatically low as the ADP’s number, the Dollar could end the week in volatility. It could also mean that the labour market, which has been a sign of strength of the US economy, is pulling back amid weakness in other parts of the economy.
In the UK, Theresa May will officially step down as leader of the Conservative Party today, allowing the leadership race to start in earnest next week. At last count, 11 Tories are vying for the job, with Boris Johnson and Michael Gove leading the way. Conservative Party members will vote on a new leader before the end of July and the summer recess.
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