ECB Push Back On Interest Rate Hike

EUR

The European Central Bank pushed back the timing of its first post-crisis interest rate hike again on Thursday 06/09 and said it would continue paying banks for lending in its latest effort to revive a slowing Euro Zone economy. ECB President Mario Draghi, said policymakers had addressed the ECB’s readiness to act in case of “adverse contingency” and several had raised the possibility in Thursday’s discussion of further interest rate cuts or restarting asset purchases.

The moves, bolder than analysts had expected until only a few weeks ago, come as a trade war between the United States and China overshadows the global economy and especially export-oriented Euro Zone countries such as Germany.

Draghi told a news conference following the policy announcement that the decisions taken had been unanimous. While policymakers say they have plenty of tools left, they have already pushed their main interest rate below zero and bought some 2.6 trillion euros worth of bonds, meaning the scope for more stimulus has shrunk, especially in the case of imported economic weakness.

Responding to rapidly deteriorating inflation expectations, the ECB pledged to keep its interest rates at their current record-low level at least through the first half of 2020, instead of the end of this year as it had said only in March.

GBP

The pound remained firmly within recent ranges on Thursday in a trading slumber that analysts say shows little sign of abating until the contest to replace Prime Minister, Theresa May, has concluded.

Data showing a loss of momentum in the British economy has failed to stir sterling this week, with most of its direction coming from euro and dollar-specific drivers. Investors are reluctant to take positions on the pound amid the Conservative party leadership contest. A eurosceptic winner could increase the risk of a no-deal Brexit, which traders say would send the pound plummeting.

Michael Gove, one of the leading contenders to replace May, said he would delay Brexit rather than rush into a no-deal exit in case it triggers an election that could propel Labour leader, Jeremy Corbyn to power.

Traders are also mostly downplaying monetary policy signals, believing that Bank of England Governor Mark Carney will not raise interest rates until the form of Britain’s European Union exit is clear.

Key Announcements

13.30 – USD: Average Hourly Earnings; Forecast at 0.3% against previous of 0.2%
13.30 – USD: Non-Farm Employment Change; Forecast at 180K against previous of 263K

13.30 – USD: Unemployment Rate; Forecast same as previous at 3.6%