The early part of the European session was relatively quiet as markets geared up for the more important events later in the day that included the European Central Bank meeting and Draghi press conference, ADP payrolls, US jobless claims and the OPEC meeting.
The euro fell after the ECB made only marginal upward adjustments to its inflation projections. The Bank kept its main interest rate unchanged in negative territory, as was widely expected. The euro started to fall during the press conference when ECB Chief Mario Draghi mentioned that second quarter growth in the Eurozone may be slower than the first quarter. He expects downside risks related to the global economy and the Brexit vote.
Draghi said he expected interest rates to stay at present or lower levels for an extended period and beyond the current QE horizon. Asset purchases are due to last until at least March 2017. The Bank’s current stimulus measures of buying assets to the tune of 1.74 trillion euros and negative rates, are aimed at boosting inflation in the Eurozone. The ECB only slightly lifted its inflation expectations, from 0.1% to 0.2% for 2016. It kept its 2017 projection unchanged at 1.3% and for 2018 it remained at 1.6%.
After trading above the key $1.12 level for the early part of the European session, the euro fell sharply following the ECB press conference, to reach as low as $1.1151.
The pound was more stable today after tumbling over 2% against the dollar since Tuesday on the back of new referendum polls showing the “Leave” campaign gaining more ground against those wanting the UK to remain in the EU. UK economic data out today had little impact on sterling. The CIPS construction PMI for May was weaker-than-expected at 51.2, versus a 52.0 forecast.
Sterling traded above the key $1.4400 level but was capped at $1.4472.
The US dollar extended losses against the yen today to fall to as low as 108.51 yen, a more than 2-week low. While the ISM manufacturing data out yesterday were quite good, the Beige Book suggested that US economic growth was still moderate and this led to uncertainty over whether there will be a Fed rate hike this month.
Meanwhile, upbeat US jobs data released today did little to lift the dollar. The private ADP payrolls change increased 173,000 in May, from April’s upwardly revised 166,000 (although it missed the 175,000 forecast). The weekly initial jobless claims number fell by 1,000 to 267,000 to a 5-week low in the week ending May 28. This was less than the 270,000 claims expected. In the prior week there were 268,000 claims. Other jobs-related data today showed planned layoffs fell to a 5-month low in May to 30,157. This marked a 27% decline from a year ago. Today’s jobs reports come ahead of the all-important US nonfarm payrolls report due on Friday.
In other news, the OPEC meeting in Vienna today was also in focus. The meeting ended with no deal on a new oil production ceiling. The failure to agree on a cap sent oil prices lower. Brent crude fell below $50 to $48.82, while US oil futures dropped to $47.96 after having earlier reached a high of $49.46.
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