Major central bank meetings were the focus of the markets today. Both the European Central Bank and the Bank of England left their benchmark interest rates unchanged at respective record lows, as widely anticipated.
The ECB left its refinancing rate at 0.15% and its deposit rate at negative 0.10%. The euro was little moved after the announcement but became volatile while ECB Chief Mario Draghi held a press conference. The euro swung from a low of 1.3351 up to 1.3392 before steadying at 1.3381.
The bottom line was that the ECB was in a wait-and-see-mode and that the Bank would have to see how some measures taken recently (in June) would impact the Eurozone economy. The September policy meeting is more important also because ECB staff forecasts will be updated. What weighed on the euro were remarks Draghi made about how the Eurozone and US monetary policy were on divergent paths for the long term and that the markets were getting bearish on the euro.
The BoE left its main interest rate at 0.5% and the asset purchase facility at 375 billion pounds as expected. However speculation is growing that the Bank will raise interest rates later this year. Investors will look closely for clues in next week’s Inflation Report as well as the minutes of today’s policy meeting due on August 20.
Sterling rose ahead of the BoE rate decision to a high of 1.6857 before slipping to 1.6822.
The dollar traded within a 20-pip range against the yen, pivoting around the 102.30 level. US initial jobless claims data helped lend support to the greenback. Claims for first time benefits fell to 289,000 in the week ending August 2 from 303,000 in the prior week and were expected to rise to 305,000.
Another key risk for the dollar/yen pair would be Friday’s Bank of Japan monetary policy statement and Japanese trade data. Meanwhile risk aversion is also a key driver for this pair since the yen is considered to be a safe haven currency. Any new developments on the Ukraine crisis will be closely watched.
The Australian dollar was the main mover today following the negative impact Australian jobs data had on the currency. The disappointing numbers raised concerns of a rate cut by the Reserve Bank of Australia. The aussie tumbled to 0.9257, which amounted to a 1.2% drop from Wednesday’s high of 0.9370.