New measures announced by European Central Bank President Mario Draghi to support the region's economy fell short of analysts' expectations. GBPEUR dropped more than 3 cents, the euro’s biggest surge since March, as the market expressed its disappointment with the ECB's latest easing measures. The ECB cut its deposit rate by the minimum 0.1% most traders had expected, to -0.3%, and extended its asset purchase programme, but did not increase the amount of government bonds it buys each month.
The ECB had been expected to have discussed more extreme ideas, possibly a two-tier deposit rate that would punish banks parking too much cash with the central bank, or the purchase of corporate debt in addition to government and municipal debt. Ultimately, although a rate cut was delivered, it was marginally smaller than the market had anticipated. Furthermore, the extension of QE by six months with no increase in the pace of purchases also disappointed.
It is worthy to note that yesterday’s appreciation in the euro will actually make it harder for the ECB to generate inflation by lowering imported inflation.
Taking a back seat to the day’s proceedings, the US saw a number of data releases throughout the day. In unemployment data, whist continuing jobless claims improved to 2.161m, initial jobless claims worsened slightly to 269k new individuals claiming state unemployment benefits from the previous month’s 260k increase. Markit Services PMI and the ISM Non-Manufacturing PMI data also worsened for the month of November, although factory orders improved. The US dollar depreciated throughout the day, reversing gains made on Wednesday evening following Janet Yellen’s speech on the Economic Outlook on Wednesday at the Economic Club of Washington.
On Thursday evening, Yellen reiterated to a committee of lawmakers in Congress that the United States may be close to raising its benchmark interest rate and will be looking closely at Friday's monthly jobs report, staying true to their “data dependence” rhetoric. Yellen said that while the Fed cannot overweight any particular jobs report, it will be looking for a solid rate of job creation in the November employment numbers in order to take lift-off in December.
13:30 – USD – Unemployment Rate (Nov) expected to remain at 5%
13:30 – USD – Non Farm Payrolls expected to drop to 200k new jobs in November from 271k jobs created in October
Daily Market Report - 04/12/2015