Forex Market Review – Euro falls after ECB rate cut; GBP jumps after BOE increases QE

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Euro weakened in the build up to the ECB policy meeting, tumbling 0.7 percent after the rate cut announcement. The central bank cut the benchmark rate by 25 basis points to 0.75 percent and lowered the deposit rate to zero.  The market ignored earlier positive data from Germany, where factory orders rose more than expected by 0.6 percent from a previous drop of 1.4 percent.

 

EURUSD retraced all of the gains from the post-EU Summit rally of last Friday. The pair dropped to 1.2375 after the rate announcement from 1.2513 before the news. The focus is now on ECB President Mario Draghi’s press conference. Euro bears will be wary of his comments in case he hints at a greater willingness of the ECB to do some unconventional easing in future.

 

EURJPY tumbled to a low of 98.92 after the ECB rate cut announcement, down 1.3 percent from the high of the earlier Asian session.

 

Sterling jumped against the dollar in a knee-jerk reaction after the Bank of England announced that it maintained the key interest rate at 0.5 percent but increased size of Asset Purchase Programme by GBP50 billion to GBP 375billion. GBPUSD spiked to 1.5604 from 1.5563 before the BoE announcement. It soon fell back on profit taking. Against the euro, sterling rose , resulting in EURGBP falling to 0.8035.

 

Dollar jumped against  yen after better than expected US job creation numbers. The ADP non-farm employment change rose to 176,000 from  136,000. Unemployment claims were also down. Focus turns to the more important Non farm payrolls report on Friday. USDJPY rose to 80.06 after the US data from 79.64.

 

The Australian dollar hit a new two-month high against the USD after China announced it cut rates, providing a catalyst to the rally. China is a major export destination for Australian commodities, and thus the aussie is sensitive to any growth-related news in the Chinese economy. AUDUSD rose to 1.0327 before easing on profit-taking.