FX Market Summary 06-06-2013: ECB resists further action

The US currency remained firmly on the defensive during Thursday with a general lack of confidence surrounding Friday’s key employment report curbing underlying buying support and laying the foundation for another squeeze on long dollar positions.

In Bank of England Governor King’s final MPC meeting, interest rates were left on hold at 0.50% and the amount of quantitative easing was also unchanged at £375bn.

Over the past few meetings, King has been out-voted on the introduction of further measures and the markets won’t know whether there was a unanimous decision this month until the minutes are released in two week’s time. Unchanged policy did support Sterling as it held close to 0.85 against the Euro and continued to gain ground against the fragile US dollar with another monthly increase in the Halifax house-price index also having a positive Sterling impact.

As expected, the ECB left interest rates on hold at 0.50% at the latest council meeting with the main focus on Draghi’s press conference. The ECB President remained generally downbeat of growth prospects, repeating his concerns that growth risks were to the downside while inflation expectations were well-anchored. He also made reference to a lack of reform measures by governments and the bank remains extremely anxious to keep pressure on politicians.

Most attention focussed on his comments surrounding negative interest rates, Draghi made clear that the ECB was technically ready to implement negative rates if required, but he saw no need for the bank to act at present.

The rejection of further measures at this time and no real hint of any short-term shift in policy triggered fresh a further adjustment of yield expectations which supported the Euro . EUR/USD moved to monthly highs above 1.3150 during the New York session as the Euro also made some progress on the crosses.

US initial jobless claims were very close to expectations at 346,000 with no major impact on expectations surrounding Friday’s payroll report while expectations of an imminent Fed tightening remainder lower.

Position adjustment and stop-loss dollar selling was again a notable feature towards the European close. EUR/USD pushed sharply higher to a peak near 1.32, challenging highs seen at the beginning of May while USD/JPY dipped sharply and triggered stop-loss yen buying below the 98.50 level.  

The Australian dollar had a wild session with heavy selling pressure initially pushing AUD/USD to 31-month lows below 0.9450. After a further round of very choppy trading, the currency rallied back to above 0.95 with a correction from over-sold conditions aided by gains in precious-metal prices.

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