GBP-EUR Powers To 1.2 as ECB Cuts Rate: LIVE Coverage on 7/11
The British pound sterling (GBP) powered higher in emphatic fashion against the Euro after the later was hit by an interest rate cut at the ECB. It is believed only 10% of market participants were geared for such an eventuality. We now foresee a period in which the Euro will struggle. For the rest of Thursday's coverage please see below, or if you would like to see Friday's Live Coverage, please click here.
Rates at last update:
- Pound euro is 0.76 pct up on last night's close at 1.1993.
- Pound dollar is 0.29 pct lower at 1.6034.
- The Pound Australian dollar rate is 0.21 pct higher at 1.6915.
- The Pound NZ dollar exchange rate is 0.02 pct higher at 1.9203.
Beware: All rates quoted here are from the wholesale markets; your bank will affix a discretionary spread when providing FX services. However, an independent FX provider will guarantee to undercut your bank's offer, delivering up to 5% more FX. Please learn more here.
16:48: Trade data dominates tomorrow's agenda
More UK data is on tap tomorrow at 09:30.
Goods Trade Balance (Sep): Expected £-9.200B, previous £-9.625B.
Total Trade Balance (Sep): Expected £-2.70B, previous £-3.32B.
Trade Balance; non-EU (Sep): Expected £-4.000B, previous £-4.351B.
16:09: GBP to become increasingly prone to employment numbers
Omer Esiner at Commonwealth Foreign Exchange hints that markets will become increasingly focused on UK employment figures going forward:
"While the pound is likely to remain buoyed by continued signs of recovery, a meaningful drop in the nation’s unemployment rate will be a prerequisite for a more meaningful shift in the outlook for U.K. monetary policy."
Regarding the euro Esiner points out how wrong-footed markets were:
"The U.S. dollar soared against the euro overnight after the European Central Bank surprisingly cut its key lending rate by 0.25%. Following a shockingly low reading of consumer inflation for October released last week, many had expected the ECB to react by cutting its key borrowing costs. However, most traders expected a move next month, after the central bank’s forecasts for growth and inflation are released. The move sent the euro tumbling against most of its major rivals. Investors will look to U.S. weekly jobless claims, GDP for the third quarter and the ECB’s post-Governing Council press conference later this morning."
15:20: Deutsche Bank - "ECB interest rate cut no big deal"
Analyst George Saravelos at Deutsche Bank has said he doesn't think today's rate cut at the ECB "is a big deal."
He says:
"Bigger picture, the US side of the equation matters more. US short-end expectations remain very subdued, helped by increasing focus on the potential for extended forward guidance from the Fed."
14:44: EUR recovering, GBP/USD also a victim of ECB rate cut
Let's take a look at the lie of the land following today's ECB rate cut.
Following the close of the press conference we have seen the euro try and claw back lost ground. A completely natural reaction considering the scale of the decline.
It is also worth noting GBP/USD was caught in the crossfire and sold off.
"The GBP/USD was also dragged down slightly on the surprise ECB interest rate cut, but rates are holding up relatively well compared to the pound’s mainland cousin. It’s clear that Asian session traders were waiting for some of the bigger news announcements today and tomorrow, based on the back-to-back Doji candles on the 4hr chart. Moving forward, the pair may drift down to support at the 1.60 round handle, but that level could well put a near-term floor under the pair for today." - Matt Weller at GFT.
14:00: ALERT - GBP-EUR shoots through the roof !!!
GBP/EUR has powered 1 pct to surpass the 1.2 level.
The EUR/USD has plummeted a full percent to hit 1.3368.
WHY - the ECB cuts rates to record-low 0.25%; euro plunges.
The press conference is ongoing and the EUR remains under pressure; as yet nothing has been said by Draghi to indicate the outlook is in fact more rosy than the cut implies. Read the latest views here: "Why this rate cut is too little too late"
ECB PRESS CONFERENCE LIVE
12:14: Oops - Bank of England does nothing
15 minutes later and I realise I have just missed the main event for today from a GBP perspective - the Bank of England MPC meeting outcome. Little wonder though - absolutely nothing to report here. Interest rates and asset purchases are kept unchanged. No accompanying note either. So this was the non-event we expected. Next week's quarterly inflation report will however prove to be more exciting.
12:09: Medium-term cautious on GBP
Analyst Luc Luyet at MIG Bank informs us that he is cautious on GBP/USD at current levels:
"GBP/USD has successfully tested the support area between 1.5894 and 1.5886 (17/09/2013 low)
and has rebounded sharply. The resistance at 1.6119 has thus far held. An hourly support
stands at 1.6020 (see also the rising trendline).
"In the longer term, prices have thus far failed to break the strong resistance area between 1.6302 (30/04/2012 high) and 1.6381 (see also the long-term declining trendlines). Given the deep overbought conditions, we would be medium term cautious on GBP/USD and monitor closely the horizontal range between 1.5894 and 1.6260 (01/10/2013 high)."
11:07: Will Draghi try to talk down the euro?
More from Schlossberg: "Mr. Draghi may also try to talk down the currency as the EUR/USD high exchange rate has become a key source of concern for the corporate sector. This earnings season, CEO after CEO of European companies, blamed weaker than expected results on the spike in exchange rates."
11:05: Markets fixate on the Euro and ECB
It's all about the Euro right now. At 12:45 GMT we get the policy decision which is followed by a press conference. Many in FX land are expecting an increase in EUR volatility as a result.
"The ECB has actually been in a stealth tightening mode as it pared down its balance sheet while the other G-4 central banks have been steadily expanding theirs. Therefore it is quite likely that Mr. Draghi could hint that the ECB will expand and extend the LTRO program - which has been the bank's favored way to add stimulus to the economy," points out Boris Schlossberg at BK Asset Management.
09:21: "Concern for those Sterling bulls amongst you"
Graham Harborne at Currency Index on why the GBP could well remain stuck around current levels:
"So far we have a bit of a mixed week in the currency markets and there might well be some concern for those Sterling bulls amongst you. A raft of positive UK data releases have seen the Pound pick up against both the euro and dollar this week but possibly more significantly it has failed to push higher and indeed retraced each time it has strengthened.
"A possible reason for this is that the BoE seem to have made their position on a future rate rise fairly clear – if we don’t see a dramatic fall in the unemployment rate interest rates will remain low. I suspect that unless we continue to see positive data releases the pound could slowly slip away."
09:11: GBP/USD eyeing 1.6260, EUR/GBP in Bear mode
Gareth Berry gives his outlook for GBP/USD and then EUR/GBP:
"The pair has bounced from the critical support at 1.5894, reinforcing the bullish picture. Resistance is at 1.6122 ahead of 1.6260.
"The recent sell-off has seen the MACD cross below its zero line, this is a bearish condition. The next major support focus is at 0.8333. Resistance is at 0.8477."
08:45: Pound euro exchange rate ascent eases
The strong climb in the GBP/EUR exchange rate has eased back for now. Markets are rightly sitting on the sidelines ahead of today's central bank meetings.
"Sentiment on the euro was cautious ahead of the ECB meeting. The jury is still out, but the this morning’s price action suggests that enough ECB softness might be discounted by now. So, in a day-to-day perspective, we expect more wait-and-see behaviour ahead of the ECB meeting," says Piet Lammens at KBC Markets.
08:30: Today may be MPC day; but investors are really looking to the inflation report
With the September UK industrial production numbers also outperforming prior expectations, investors may continue to look towards any changes in the BOE’s forecasts in its BOE Inflation Report next week.
"Meanwhile, the BOE expected to stand pat today and the sterling may instead look towards the ECB and Fed taper prospects for further directionality. We remain neutral on the pair in the interim," says Emmanuel Ng at OCBC Bank commenting on the headline GBPUSD pair.
08:20: GBP aided by yesterday's data; Lloyds looking for further gains
The British pound (GBP) has had a subdued start to Thursday's trade. Profit taking will certainly be playing its part.
Despite better industrial production data yesterday following on from the better services PMI, GBP didn’t manage any further significant progress.
"Nevertheless, we still see upside scope for GBP/USD in particular, though much today will depend on the EUR’s reaction to the ECB meeting. Today’s BoE MPC meeting should be a non-event, but there are some expectations building of a more hawkish tone in the QIR next week, so if the EUR does benefit after the ECB meeting, there is potential for GBP/USD to test recent highs at 1.6260 before the end of the week." - Lloyds Bank Research.