Market ranges were generally subdued ahead of key central bank rate decisions on Thursday. A notable exception was the Australian dollar which was undermined by a weaker than expected employment report and AUD/USD retreated back below 0.9500 during the Asian session. EUR/USD consolidated just above the 1.35 level with GBP/USD holding above 1.6050.
There was no surprise from the Bank of England with interest rates on hold at 0.50% while the amount of quantitative easing was also unchanged at £375bn. There was no statement from the MPC following the decision with the crucial inflation report due next week. GBP/USD initially held steady following the decision with moves then dominated by the ECB rate decision.
The consensus forecast was that the ECB would leave rates on hold with a few investment houses calling for a cut. In the event, there was a further cut in the repo rate to a record low of 0.25% from 0.50%, the fifth rate cut since Draghi took over as President in 2011. There was no move to push the deposit rate below zero as it was held at 0.0%.
The Euro weakened very sharply following the decision as it dipped to lows just above 1.3350. There were reports of sizeable option-related defence at this level which helped combat immediate selling pressure. In the regular press conference, Draghi denied the risk of deflation, but did state that the Euro-zone was set for a prolonged period of low inflation. The rate decision was not unanimous while the commitment to low rates was extended. Draghi was also keen to point out that the Euro was not factor in the rate cut.
The US economic data was stronger than expected with a headline third-quarter GDP release of 2.8% from an expected 2.0%, although this was flattered by a sharp rise in inventories. The jobless claims data was also better than expected with a decline to 336,000 in the latest week from a revised 345,000 previously which sustained some speculation that the Fed could move towards tapering in December.
The stronger data produced a general boost to the dollar which pushed EUR/USD lower again and it briefly tested support below 1.3300 before recovering ground. USD/JPY pushed sharply higher with a break above the key 99.00 resistance area triggering a surge to 98.40 before drifting weaker again. GBP/USD dipped to lows just above 1.6000 as the Euro weakened to its lowest level against Sterling since January.