Central banks dispel policy fears

Little was expected from either the European Central Bank or Bank of England today, yet much was delivered.

While both interest rates remained unchanged, the central banks appeared to be at pains to appease investors’ fears that tighter monetary policy was imminent. While we cannot suggest that this was a co-ordinated move from both central banks, there is a certain tendency to assume that this unprecedented rhetoric could be an attempt to temper the recent hawkish tones emanating from the US Federal Reserve.

European markets

Forward guidance is clearly on trend and as sterling plunged 1.3% against the dollar, it is now quite clear that the Bank of England are willing to abandon its key mandate and ignore what are rather sticky inflation pressures in favour of continued accommodative measures. Not to be outdone, Mario Draghi seemed to step out of his usual non-committal character, hinting at the heightened possibility for future rate cuts and making it crystal clear that current rates would remain as is for an ‘extended period’.

Equity markets enjoyed a free lunch, with the FTSE 100 soaring 3% and decisively puncturing the 6400 level for first time in almost a month. The index is now on track to post its best single day gain since last September. The mining sector has been volatile of late, finding it easy to make gains but difficult to retain them. Today was a risk-on day, with Polymetal and Rio Tinto adding 5.87% and 4.94% respectively.

In an almost cruel twist of fate, only one company failed to make headway on the entire index. Schroders lost 1.2% on news that it had launched a sterling-hedged share class on two of its European funds. The jury is out on whether the gains seen today will be sustained; tomorrow’s US payrolls release should help to clarify.


The apparent disregard for potential higher inflation as a result of accommodative monetary policy appears to be shared by gold traders today. While a stronger dollar has certainly helped to dissipate a move upwards, gold prices remained fairly static and even priced in sterling and euro has failed to make any real headway above yesterday’s intraday highs.

copper has also been capped by the stronger dollar, having caught a bid since its mild retreat below the $3.00/lb level last week. The metal is finding it difficult to break higher as global growth concerns remain an issue.


With all the central bank meetings and forward guidance and even with the US holiday, the FX market was a busy place today. The euro hit upon a new one-month low against the dollar falling to $1.2885 at one juncture before recovering the $1.29 level.

Against sterling, the moves were uncharacteristically but not surprisingly erratic, with the pair taking a volatile triple-digit ride before settling back in the centre of its usual £0.85/0.86 range.

Dollar strength has helped push the Japanese yen back through the ¥100 mark again, but the pair will need to overcome the 100-hour moving average if there is to be any significant move higher.

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