Exchange Rates Today: Euro Slammed Lower + Latest British Pound and US Dollar Conversions and Predictons

For reference, the following exchange rates are noted today (05/09):

• The euro to dollar: EUR/USD is 0.11 pct higher than on the previous days close, if we convert 1 EUR into USD we get a rate of 1.2959.
• The pound to dollar: GBP/USD is 0.22 pct lower, If we convert 1 GBP into USD we get a rate of 1.6296.
• The pound to euro: GBP/EUR is 0.32 pct lower, if we convert 1 GBP into EUR we get a rate of 1.2577.

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It's All About the Euro

"The euro literally fell out of bed Thursday after the ECB surprised many by cutting its main interest rates to new lows. The ECB cut its main refi rate to a historic low of 0.05 percent from 0.15 percent and is now slapping banks with a -0.20 percent interest rate for loans from the central bank," says Joe Manimbo at Western Union.

Today’s action by the ECB highlights how conditions continue to deteriorate in the 18-nation bloc.

Inflation, at 0.3 percent, continues to worsen, while unemployment remains unhealthy and above 11 percent. Meanwhile, the ongoing crisis in Ukraine remains a confidence killer for both businesses and consumers.

"The euro responded by falling to July 2013 lows against the greenback below $1.31. Mr. Draghi stepped harder on the euro after his post-meeting press briefing said the bank would also buy asset-backed securities which seemed to stop just short of full scale QE. Without question, the ECB today delivered more than the market had anticipated, heaping significant pressure on the single currency," says Manimbo.

The British Pound Exchange Rate Today: Great Data, Pity About More Scots Wanting a Divorce

There was good news on the economic front delivered this week - the UK services industry unexpectedly saw growth accelerate in August as the key PMI improved to 60.5 from 59.1 in July, the latest number was forecast to ease to 58.5.

This adds to the beat witnessed on the Construction PMI, all of which should really have set the pound up for a great September.

However, at present the risks of a break-up of the UK is what is really attracting market attention. Joe Manimbo at Western Union tells us:

"Sterling sentiment was still woozy though after the pound slid nearly 1 percent Tuesday for its biggest single-day skid since January which came after a poll showed the camp growing who favour a Scottish exit from the U.K.

"The Scot vote on independence is set for Sept. 18. Uncertainty over the referendum outcome should keep in place a low ceiling above the pound."

We would not take any chances on the UK currency until the outcome of the vote is known. Those with currency market requirements should however be willing to take advantages of any sudden swings in their favour.

Dollar Ratest Today: USD Rally Looks to Non-Farm Payrolls

The U.S. dollar retreated from a 14-month trade-weighted high overnight after talk of a peace deal between Russia and Ukraine helped lift the euro and as investors flattened positions ahead of a very busy second half of the week.

Attention will now start to turn to the all-important payrolls report for August.

"A consensus reading (+225K) reading of payrolls would mark the seventh straight month of over 200K jobs growth in the U.S. and would likely provide a compelling argument for the Fed to begin raising rates sooner rather than later. Key for the dollar’s outlook will be the extent to which wage inflation shows up in the report," says Omer Esiner at Commonwealth Foreign Exchange.

A lack of wage inflation has been providing the Fed cover to remain very dovish, so Esiner reckons any signs that incomes are rising would likely force a further shift in the Fed’s policy stance toward the centre.

Treasury yields and the dollar are likely to rise on another strong jobs report this Friday.