Euro tumbles on ECB rate cut

Currencies Direct May 3rd 2013 - < 1 minute read

The big news yesterday was Super
Mario, ECB chief, dropping interest rates by 25 basis points at the
ECB monthly meeting. The move was widely expected in the market
which is why there was not a huge reaction in the aftermath, with
GBPEUR nudging up 60 pips or so. The larger move was EURUSD which
after trading over 1.32 came back to just over 1.30.

I think the market was hoping for
more details on how the ECB will help to extend to credit to SME’s
across the euro zone, but as usual Mario talked a great deal with
zero content, I guess we will find out more about the plans in
planned speeches and press leaks during this month.

In terms of the Euro moving
forward, the rate cut should allow GBP to push towards the 1.20
level over the next couple of months. This should be accelerated by
today’s non-farm payrolls which are expected to be softer than
originally forecast. As Phil M said yesterday the soft ADP jobs
number on Wednesday usually means the NFP number is also soft, and
will cap off a month or so of weaker than expected US data.

The Dollar has in recent months
begun to trade like a normal currency, away from the
Risk-on/risk-off paradigm that dominated USD trading over the past
few years. That is why a disappointing NFP number should see the
Dollar weaken slightly, however don’t be surprised to see GBPUSD
ramp up as we move towards the number.

Euro zone PPI is also due this
morning at 9am – recent individual country PPI’s have been dire so
expect the theme to continue with currency area wide number as
well.

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Currencies Direct

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