The euro exchange rate complex came under renewed pressure on Thursday following the much-awaited European Central Bank (ECB) policy decision and the press conference that followed.
The euro dollar exchange rate has hit a 2 year low as a combination of persistent US dollar strength and fears on the Eurozone's outlook push the pair lower.
However, the shared currency has since recovered lost ground against both the pound sterling and US dollar as investors realise the moves were overdone.
Exchange Rates Latest (Friday the 7th).
- Pound to euro: 0.21 pct lower on a day-to-day basis at 1.2769.
- Pound to dollar: 0.01 pct lower at 1.5830. A run lower into the mid 1.550's is expected now that support at 1.60 has given way.
- Euro to dollar: 0.18 pct higher at 1.2398.
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P.S: The above quotes are taken from the global FX spot market. It must be noted that your bank will widen the spread on the above numbers when passing on their retail rate to customers. An independent FX provider will however guarantee to undercut the bank's offer thus delivering you more forex. Please see more on this here.
The British Pound Rate Today
The pound has come under pressure against the US dollar but has headed higher against the euro.
Broad-based US dollar strength continues to dominate currency markets and recent moves are part of a downtrend action that has been in place since mid-year.
Wednesday's Services PMI data missed the mark sending the pound lower; traders were betting on a reading of 58.5, however a figure of 56.2 was released. This adds to the disappointment of the previous day's Construction PMI.
"Any upside for sterling looked modest after British data offered more evidence suggesting Europe’s No. 3 economy has descended into a lower gear. Growth in the construction sector slowed more than expected to its lowest in five months," says Joe Manimbo at Western Union.
We see the pound sterling retaining a modest tone ahead of the November Quarterly Inflation Report at the Bank of England - the highlight of the month.
The Euro Rate Today
The highlight this week was on ECB President Mario Draghi’s post-rate decision press conference.
The euro hits fresh 2 year lows against the US dollar and one month lows against the pound after Draghi said his team are unanimous on the need for more stimulus if needed.
Markets sold the euro further when he warned of lower forecasts for the Eurozone and said ABS buying is to begin soon.
However, the shared currency soon staged a rally and recovered lost ground.
"It’s not clear exactly what triggered the move, given the outcome was largely as expected. The only notable change was the statement that indicated that the ECB ‘has tasked ECB staff and the relevant Eurosystem committees with ensuring the timely preparation of further measures to be implemented, if needed’" say Lloyds Bank Research.
The market may have taken this as a hint that there could be more measures to come.
Kathy Lien at BK Asset Management comments on the outlook for the euro:
"The trade in FX still centers around policy divergence and in Draghi's own words, the 'main message' today is that 'ECB assets will expand as others contract.' As long as there is a risk of additional easing from the ECB, the euro will remain under pressure."
The meeting comes in the wake of a strong euro exchange rate rally on news that national central bankers in the euro area plan to challenge European Central Bank chief Mario Draghi on Wednesday over what they see as his secretive management style and erratic communication and will urge him to act more collegially.
ECB sources told Reuters this week that Draghi effectively set a target for increasing the ECB's balance sheet immediately after the policy-making governing council explicitly agreed not to make any figure public.
The euro rallied as the governors who hold a majority on the 24-member council could limit Draghi's space for bolder policy action in the coming months.
On the data side, activity in the Eurozone’s manufacturing sector picked up very modestly in October, but largely because businesses cut their prices. The released figure of 50.6 was up on September’s 50.3 but was revised down from the flash estimate of 50.7 published a few weeks ago, an indication that the currency area is unlikely to soon escape a period of very low inflation.
Commenting on the euro's performance, Manimbo says:
"The euro rose above $1.24 against the greenback, as markets cashed in some profit on the U.S. currency’s days of outperformance. Any support for the euro is likely to prove shallow on uncertainty in the run-up to a European Central Bank policy decision on Thursday.
"Most expect the ECB to hold fire for now on stronger stimulus. But the decision is considered a closer call after the BOJ’s surprise move last week to strengthen policies to buoy the sputtering Japanese economy. A central bank chief that at least hints at a growing likelihood of ECB action would reinforce the euro’s bearish bias and risk further depreciation."
The Dollar Rate Today
Mid-week sees the US dollar bid higher as fresh data points the way to an earlier interest rate hike at the US Federal Reserve.
The latest ADP employment data shows US private employers added 230,000 jobs in October, the most since June and exceeding economists' expectations.
Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 220,000 jobs.
Profit-taking after days of outsized appreciation caught up with the dollar earlier in the week however.
"The take profit trade was also facilitated by weaker than expected U.S. trade data as the nation’s trade gap unexpectedly widened to $43 billion in September from $40 billion. The higher shortfall can lead to a downward revision to Q3 growth. Look for bigger, more meaningful cues for the dollar in Friday’s U.S. jobs report. A strong reading would add to growing U.S. optimism and keep the dollar in the fast lane," says a note from Western Union.
