Search ForexCrunch

This week has been important for the euro. The ECB made their highly anticipated monetary policy announcement, which came after the rhetoric bandied around on negative interest rates a week earlier and calls by the IMF amongst others for the central bank to take action to stave off the threat of deflation.

The ECB announced that they would continue to monitor the situation and take a wait-and-see approach to setting monetary policy.   The euro initially bounced, but fell as ECB President Mario Draghi went on to say in his accompanying press conference that inflation risk remained firmly anchored, and expressed that the board were unanimous in their commitment to use unconventional monetary tools in the future should the need arise.   He was certainly dovish and made it clear that they “don’t exclude further monetary-policy easing”.   EUR/USD snapped lower, through stops, and on to a low of 1.3705.

By Alex Edwards at  UKForex, an international money transfer service

In the weeks ahead, markets will be closely scrutinising inflation data from the eurozone, and should the headline print weaker than expectations, it will be difficult for the ECB to refrain from taking action at their next meeting in May.

US Non-Farm Payrolls, too, were released last week.   Markets were looking for a rebound in the March employment numbers as the bad weather in the US lifted towards the end of February.   The data printed broadly in line with expectations showing that employers added 192,000 jobs to their payrolls in March (vs. expectations for 199,000).   The USD weakened a little on the move, but only slightly.

As for the pound, it weakened throughout the week following a series of soft PMIs against expectation.   Meanwhile, comments from BoE governor Carney were published in the Northern Echo – he said that he would not rule out an interest rate hike before the general election in May next year.   This supported GBP/USD a little during the early part of this week.

Next week, we look forward to UK Manufacturing Production and the BoE Monetary Policy Statement.   However, this is likely to be a non-event, with interest rates and QE expected to remain unchanged – unless Carney decides to make some accompanying comments.   The US FOMC Minutes are also due, and investors will be keen to get a better gauge of how close the first interest rate hike is and would also appreciate reassurance with regard to their expectations for Fed tapering.

Analysis:  NFP reaction: buy the rumor, sell the fact; USD could come back