27/07/2018 – Euro Suffers After ECB Signals No Change

EUR

The euro fell on Thursday as the European Central Bank clung to its easy monetary policy and signalled no change in its timetable to move away from its ultra-low rate policy and to end its asset bond purchase program.

ECB President Mario Draghi said at a press conference following the ECB’s policy decision while confident about regional inflation achieving ECB’s 2-percent goal, rising tariffs and other trade barriers would hurt the growth of the 19-member economic bloc.

Draghi’s reticence persisted in the aftermath of a meeting between U.S. President Donald Trump and European Commission chief Jean-Claude Juncker on Wednesday.

Trump agreed to refrain from slapping tariffs on European-made cars, while the two sides started discussions on reducing other trade barriers in a bid to avert a transatlantic trade war.

GBP

The pound fell half a percent on Thursday as a stronger dollar combined with mounting uncertainty over Brexit negotiations, offsetting the positive impact of bets on a Bank of England interest rate hike next week.

With just over eight months left until Britain is due to leave the European Union, there is little clarity about how trade will flow as Prime Minister Theresa May tries to strike a deal with the bloc. May on Thursday sought to reassure the public about government plans to stockpile medicines and blood products ahead of a possible no-deal Brexit.

The pound has been vulnerable to Brexit’s to and fro in recent weeks, gaining on hopes May will secure a trade deal that keeps Britain close to Europe and falling on worries the talks will collapse and leave it isolated.

However, rising expectations of a BoE interest rate rise – the market is currently pricing in an 80 percent chance of a 25 basis point increase at next week’s monetary policy meeting – have helped the currency off 10-month lows hit last week.

Key Announcements

13:30 – USD: Advance GDP QoQ; Forecast at 4.1% against previous of 2.0%