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EUR Falls Post ECB Interest Rate Guidance

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EUR

The Euro fell to a two-week low against the United States Dollar as the European Central Bank announced that interest rates are expected to remain at their present levels at least through the summer of 2019. The euro traded at the highest levels of the day on the announcement that the ECB will reduce its stimulus program from 30 billion euros per month to 15 billion euros, starting from October and will end the program by the end of December. However, the interest rate path guidance weighed on the currency. The ECB lowered its GDP forecast for 2018 from 2.4% to 2.1% and raised the inflation expectation from 1.4% to 1.7%. The changes to the inflation forecasts reflect the changes in oil prices. EUR/USD posted its biggest one-day decline in two years and is on the course to post its lowest weekly close in eleven months. In terms of economic data, the Consumer Price Index for May is due today.

USD

The Dollar index which measures the strength of the US dollar against a basket of major currencies traded near an eleven-month high due to the divergence in interest rate guidance between the Federal Reserve and the European Central Bank. The ECB announced that the rates are expected to remain low past summer 2018, whereas the Federal Reserve is expected to raise rates two more times this year. Moreover, the economic projections of the Fed were much better than the projections of the ECB.

JPY

The Japanese Yen tumbled to a three-week low against the United States dollar as the Bank of Japan keeps monetary policy unchanged. The BOJ maintained a short-term interest rate target at -0.10% and its annual asset purchases at 80 trillion Yen. The Bank of Japan lowered the CPI forecast, and some members said that there is a low chance that inflation will rise to two percent target.

Gold

Gold Prices rose to a one-month high earlier on Thursday due to the weakness of the US dollar. However, the gains faded past the ECB interest rate guidance that provided support to the US dollar. Gold is back to trade near the $1,300 psychological level from a high of $1309. Trump approved yesterday tariffs on $50 billion of Chinese goods. China is expected to respond to this decision in the coming hours. If the trade war between China and United States rises again, gold prices could earn support.

Oil

Oil prices were mixed yesterday with the WTI rising slightly and the Brent slipping to reduce the spread to $9 from a high of $11 in the past weeks. Oil prices are trading in a narrow range ahead of the OPEC meeting on the 22nd of June. The US oil rig count from the energy services firm, Baker Hughes, will be reported today. The US oil rig count stands at 862, the highest level since early 2015.

The most important economic events:

GMT Country Event Expectation Previous
9:00 EU CPI (YoY) (May) 1.9% 1.9%
9:00 EU Core CPI (YoY) (May) 1.1% 1.1%
13:15 US Industrial Production (MoM) (May) 0.2% 0.7%
17:00 US U.S. Baker Hughes Oil Rig Count   862.000


 
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