Euro Stumbles as ECB Slows Pace of Bond Purchases

Pound (GBP) Strengthens on Hawkish BoE 

The Pound (GBP) surged yesterday, hitting a three-week high against the Euro (EUR), despite parliament voting to raise national insurance contributions the evening before. 

Sterling’s upside seems to have been caused by hawkish comments from the Bank of England’s (BoE) Andrew Bailey who, on Wednesday, expressed his belief that UK economy has met the minimum criteria for monetary policy to be tightened, raising the possibility of a rate hike next year. 

Turning to today, the Pound might face headwinds as this morning’s GDP data shows that UK economic growth stalled in July, printing at just 0.1%. 

Euro (EUR) Dented by ECB Decision 

The Euro (EUR) slipped yesterday after the European Central Bank (ECB) announced plans to slow the pace of its bond-buying programme rather than begin winding down crisis-era aid. 

With ECB President Christine Lagarde insisting that this is not tapering, the move seemingly puts the ECB in contrast with the Federal Reserve and the Bank of England (BoE), which may have caused the downside in EUR. 

The Euro seems to be struggling this morning, despite inflation in Germany rising to 3.9%. However, with a risk-on mood weighing on the US Dollar (USD), the Euro may have a chance to recover. 

US Dollar (USD) Dips on Increased Risk Appetite 

The US Dollar (USD) posted modest losses yesterday as a slight improvement of market mood dented demand for the safe-haven currency. 

Risk appetite increased following the ECB’s cautious decision, as it reassured investors that the bank wouldn’t tighten policy too quickly – as it did during the Eurozone crisis in 2011. Additionally, US jobless claims hit a new pandemic low. 

If the bullish market mood persists, USD may remain subdued today, although a forecast rise in producer prices and wholesale inventories could bolster the ‘Greenback’. 

Canadian Dollar (CAD) Climbs as Oil Prices Rise 

The commodity-linked Canadian Dollar (CAD) firmed through yesterday’s session amid a modest rise in oil prices. 

This afternoon, Canadian employment data is forecast to be positive, with unemployment expected to drop from 7.5% to 7.3% This could boost CAD, particularly if oil prices continue to firm. 

Australian Dollar (AUD) Gains amid Risk-On Mood 

The Australian Dollar (AUD) ticked higher overnight as the risk-sensitive ‘Aussie’ was supported by a bullish market mood. 

New Zealand Dollar (NZD) Firms despite Spending Slump 

The New Zealand Dollar (NZD) also climbed overnight, despite a slump in credit card spending, as increased risk appetite boosted demand for the ‘Kiwi’.