Euro and pound drop on central bank comments

The EUR fell like a stone as Mario Draghi and the ECB made the historic step of changing its communication style.

The bank suggested it will ‘leave the key interest rates at present or lower levels for an extended period of time’, thus adopting forward guidance and turning its back on previous calls that it would always look at policy meeting by meeting. This is key and is clearly aimed at moves in the bond market. It also signalled that it is still looking closely at a refinancing rate cut, while keeping an open mind on negative rates. EUR/USD fell to a low of 1.2883 on the back of this statement; however the pair has rebounded, reclaiming the 1.29 handle.

Like EUR/USD, cable fell heavily as the BoE gave forward guidance for the first time in its history, again pushing back on the sharp moves in the bond market. GBP/USD fell to 1.4065 on the back of this change in stance, with GBP falling hard against other G10 currencies. Higher yields in the UK are extremely damaging given the UK runs the highest negative basic current account balance in the G10, so it seems Mark Carney and the BoE are extremely keen to keep rates lower across the curve. We were neutral on cable yesterday given the technicals, however the balance has changed somewhat and we feel traders will look to sell rallies on the back of the new forward guidance.

Looking at gold, it’s all about the US non-farm payrolls at 22:30 and the implications the market will set for future Fed tapering. The market is expecting 165,000 jobs to be created in June, which is a modest slowdown from the prior month and we’d expect a number above 180,000 to provide an upside lift to US bond yields and thus downside pressure on gold. Of course the market will have to look out for other metrics such as hours earned and worked, while the participation rate will be key when looking at the unemployment rate.

The talk on the floors is about a press conference between the PBOC and CBRC (Central Banking Regulatory Commission) and we’d expect to hear more on liquidity provision and banking reforms, although it has to be said there has been a calming in the money markets of late. The market will still be keen to hear what they have to say.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.