Forex Europe Review – Euro falls after interest rate announcement and Trichet speech

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The Euro was on a rollercoaster today rising prior to the announcement of interest rates by the European Central Bank peaking at 1.4645 against the Dollar then dipped again before rising to another high of 1.4647 after ECB President Jean Claude Trichet’s hawkish speech. He mentioned the key words “strong vigilance” which gives the signal that a rate hike is due in July. He also mentioned that monetary policy stance is still accommodative, which are also a signal that rising inflation in the EU will allow for a further rate increase. Meanwhile at around the same time as the ECB press conference, the U.S. weekly jobless claims data were released, much higher than expected, boosting the Euro further. But just before the close of the European trading session, the Euro reversed direction abruptly and started plummeting down to 1.4523.The reason for this reaction is because according to traders, they already priced in the July rate hike and so now investors are taking profits on the gains racked up ahead of Trichet’s speech.

 

Sterling was very volatile today reacting to different news. The Pound rose in the morning after positive data indicated a narrowing UK trade deficit, bringing up GBPUSD to a session high of 1.6465. However, Cable started its decline from then onwards after the BoE announced rates were unchanged at the record low of 0.5 percent, bringing the pair down to a low of 1.6383.

 

USDCHF finally broke out of its range today in European trading, rising to a high of 0.8426 from the open of 0.8368.The Swiss Franc already recently hit record highs against the Dollar and there is little reason to break past that as markets have already factored in the weak U.S. economy data. There is expectations now that the Dollar can only go up as the U.S. will soon recover after the Federal Reserve plans to conclude QE2 (quantitative easing) in June, we should see additional U.S. dollar strength emerge in the second-half of the year.

 

USDJPY was very choppy during the session, hitting highs of 80.20 and lows of 79.92. However, against the Euro, the Japanese Yen gained 115 pips from the morning high of 117.41 to lows of 116.26 after the announcement of interest rates by the ECB.

 

EURUSD GBPUSD EURGBP USDCHF USDJPY
OPEN

(07:00 GMT)

1.4616 1.6410 0.8906 0.8368 80.08
DAY’S HIGH 1.4647 1.6465 0.8915 0.8426 80.20
DAY’S LOW 1.4523 1.6383 0.8860 0.8354 79.92
CLOSE

(14:00 GMT)

1.4532 1.6397 0.8861 0.8418 80.07

Note: Daylight Saving Time in effect. Add 1 hour to GMT