The dollar continues to weaken on Thursday. The euro/dollar reached 1.1183 and the pound/dollar hit 1.4665. Pressure on the dollar is up after Dudley’s announcement yesterday and the disappointing PMIs from Markit and ISM.
The European Commission dropped its GDP and inflation forecasts for the Eurozone and still the euro strengthened against the dollar. The euro bulls received support from the growth in the euro/pound cross rate. The euro cross generated demand as the market awaited the Bank of England’s interest rate decision.
The forecast for GDP was dropped for 2016 to 1.7% against November 2015’s 1.8%. CPI in Eurozone countries is set to be down from 1% to 0.5% this year. The European Commission has come to this conclusion based on the average annual price of a barrel of Brent benchmark oil being at $35.8 in 2016.
The pound/dollar dropped 70 points to 1.4588 before the BoE convened. The Bank decided to leave things unchanged with interest rates at 0.5% and asset purchasing at £375 billion. Just to let you know: the rate has been untouched since 2009 and the asset program since 2012. All nine MPC members voted to leave the rate unchanged.
The GBP reacted to this news by falling to 1.4544 against the dollar, but the euro/pound rose to 0.7677. Mark Carney is set to speak later. Taking the voting into account and Friday’s NFP, I expect the pound/dollar to drop to 1.4525 by the day’s end. The euro/dollar is receiving support from many of the cross pairs. As soon as they start to correct, the rate will return to 1.1120. While the crosses aren’t U-turning, don’t be left catching anvils.