The Euro ticked higher against the US Dollar this afternoon in reaction to the European Central Banks’s (ECB) latest monetary policy meeting.
Following the meeting the EUR USD exchange rate rocketed to 1.06, up from 1.05 immediately beforehand.
Unsurprisingly the central bank voted to keep Eurozone interest rates at a record low of 0% while also deciding to keep its quantitative easing programme in place for at least the rest of the year.
Despite growing pressure to tighten monetary policy from lawmakers from Germany -especially in light of inflation now falling within the Bank’s targets- ECB President Mario Draghi announced that current political risks made it prudent to carry on its aggressive stimulus policy.
In a statement that will be familiar to many, the ECB said;
‘If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the program in terms of size and/or duration.’
However despite Draghi confirming that the ECB was unwilling to deviate from its current course, markets were impressed with his upbeat outlook for the economy as he played down the risks of deflation.
Meanwhile the US Dollar continues to be strengthened by bets that the Federal Reserve will raise interest rates later this month, with CME Group’s FedWatch tool placing the current odds at over 90%.
Fed Chair Janet Yellen said;
‘At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.’
More analysts are now starting to predict that the Fed will reach its targets of three rate hikes in 2017, with some even going so far as to suggest that the pace of monetary tightening could accelerate even faster over the next couple of years.
However data showing that Initial Jobless Claims recently rose could take the wind out of the ‘Greenback’s’ sails slightly as they jumped from 223k to 243k for the week ending March 4
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, outpacing predictions it would rise to 235k and suggesting that there is still some underlying weakness in the US job market.
The rise is not expected to negatively impact Friday’s employment figures however, with the unemployment rate believed to have fallen from 4.8% to 4.7% in February, likely prompting the US Dollar to recoup much of the ground it lost today.
Meanwhile the Euro may find itself languishing tomorrow morning with the release of Germany’s latest trade balance as economists predict that it will have slid from €18.7bn at the start of the year.
There is also likely to be further pressure on the single currency ahead of the Dutch elections next week in which far-right candidate Geert Wilders is threatening to claim a significant proportion of the vote.
While markets do not expect him to be able to form a government, a strong enough performance could hinder the other parties’ attempts to create a coalition, while also proving the credibility of populism on the continent.