Sounding the alarm for the Euro

The euro loses ground after the ECB strike a cautious tone, sounding the alarm over slowing economic growth.

Previous Day's Market Highlights

The euro fell to its lowest level against the dollar this year in the wake of today’s European Central Bank meeting where, as expected, rates were kept on hold. Despite the unchanged monetary policy, ECB President Draghi raised concerns that risks to the economic outlook have moved to the downside while also reaffirming that significant stimulus is still necessary to bring inflation back to target levels. Despite the ECB remaining confident that underlying inflation will rise and that a tightening of monetary policy will be necessary, money markets seemed less than certain with the chances of a rate hike this year dropping to only 40%. None of the comments provided any support to the single currency, which lost around 0.5% across the board over the course of the day.
Elsewhere, PMI surveys from the eurozone showed slower expansion than forecast, with figures for the bloc as a whole dragged down by a slowing services sector in France. Both services and manufacturing PMIs fell to their lowest levels in over 5 years at 50.8 and 50.5 respectively. The data has further added to concerns over an economic slowdown across Europe, with such concerns fuelled by reports later in the day that German GDP growth forecasts for the year had been slashed to only 1%.
Other economic data was of lower tier and did not have much effect on price action, however weekly jobless claims from the US fell below the 200k mark for the first time since 1969. While no economic data was released from the UK, sterling fell modestly against the dollar as businesses and politicians raised concerns over a no-deal exit from the European Union, though the market continues to believe that an extension to the negotiating period is the most likely outcome. On the other hand, the pound rose against the euro to trade close to its highest level since April 2018 as the single currency weakened after the ECB meeting.
Finally, equity markets in Europe, barring the UK's FTSE, closed in the green, adding around 0.5% while US markets traded broadly flat. In addition, oil inventory data from the US showed a build of 8mln barrels over the past week though both Brent and WTI traded relatively unchanged.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1571 1.1604 1.1035 4.90%
GBP/USD 1.3104 1.3139 1.2440 5.32%
EUR/USD 1.1325 1.1570 1.1280 2.51%
GBP/AUD 1.8450 1.8522 1.7613 4.91%
GBP/NZD 1.9330 1.9426 1.8603 4.24%
GBP/CAD 1.7442 1.7498 1.6756 4.24%

Today's Market Highlights

The economic calendar is much quieter to end the week, with no tier 1 economic data, hence the focus of market participants appears set to return to the ongoing geopolitical themes of Brexit, the US government shutdown and the Sino-US trade war. The pound has risen above $1.31 and €1.16 this morning after reports the DUP are set to back May’s withdrawal agreement, and is likely to remain sensitive to Brexit-related headlines.  Meanwhile a resolution to the trade conflict seems unlikely after comments from US trade secretary Ross that a deal is ‘miles and miles’ away.

The only economic data of note is IFO business climate figures from Germany, expected to fall to a multi-year low, which could add to investors fears over a eurozone economic slowdown (as flagged by the ECB). Other data is of lesser significance, however mortgage lending figures from the UK may be watched after comments from the BoE earlier in the week that they were not concerned over increasing debt levels while the World Economic Forum hosts the final day of their summit in Davos.
Looking ahead to next week, the main calendar highlight looks set to be the Federal Reserve meeting where expectations are for policy to be kept on hold though close attention will be paid to the FOMC's comments as the chances of a pause in the tightening cycle continue to increase. Other data highlights include the monthly US labour market report, GDP figures from Canada and the eurozone as well as CPI inflation from the eurozone and Australia.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:00am EUR German IFO Business Climate 100.6 101.0
9:30am GBP BBA Mortgage Approvals 39k 39.4k
11:00am GBP CBI Realised Sales (m/m) 2% -13%