U.K. gets its Brexit extension, ECB’s Draghi delivers a dovish statement, FOMC continues to adopt a “wait and see” monetary policy.
As predicted, by the economists polled by Reuters and Bloomberg, the ECB announced they had kept the key interest rate unchanged at 0.00% and the deposit rate fixed at -0.4%, at the culmination of their committee meeting. Later in the afternoon, during his press conference in Frankfurt, the ECB President Mario Draghi urged patience, with regards to any change in the current dovish policy, which could involve further bank stimulus. The likelihood that rates will rise in 2019, is now extremely remote.
He cited global growth worries as a reason for caution, coming the day after the IMF revised their global and European growth predictions down significantly. The overall impact on European markets and the value of the euro was immediate after Mr. Draghi’s statement; EUR/USD price fell through the second level of resistance, S2, before whipsawing in a tight range, to then recover to climb above the daily pivot point. At 22:10pm U.K. time, EUR/USD traded up 0.05% at 1.126, up 0.17% during the past month. Germany’s DAX and France’s CAC closed up on Wednesday, by 0.47% and 0.25% respectively.
The Brexit drama opened a new chapter on Wednesday evening, as prime minister May appeared before the E.U. council, pleading for an extension of the Brexit date beyond April 12th, when technically the U.K. was scheduled to crash out. Whilst most of the remaining E.U. partners appeared to be compliant to allow an extension, President Macron of France remained unconvinced by May’s belief that she’ll eventually obtain Parliamentary authority to leave. Therefore, the length of the extension and what conditions would be attached, were a major barrier, to arriving at a unanimous consensus at the emergency European council summit. E.U. sources eventually confirmed there will be an article 50 extension to 31st October, with a review of British cooperation, to determine whether there should be an earlier exit on 30th June.
GPB/USD oscillated in a narrow range, between the daily pivot point and the first level of resistance, during the day’s trading sessions and at 22:30pm price traded at 1.308, up 0.20%, having traded in a narrow range since the beginning of April, as FX traders awaited the E.U. decision and any further Parliamentary developments, before dictating the direction of sterling versus its peers. EUR/GPB traded at 0.861, down -0.19%, trading in a tight range, between the daily P.P. and the first level of support.
The latest U.K. GDP data series came in ahead of forecasts on Wednesday, with: industrial, manufacturing, construction output and activity all rising in the month of February, consequently GDP rose in the month by 0.20%, beating the forecast of 0.00%. However, the U.K. statistics agency, the ONS, were quick to point out that: stockpiling, increased orders, whilst manufacturers and construction firms quickly finished orders and projects ahead of any potential Brexit chaos, had caused the boost in GDP. Over the coming months, U.K. GDP may slip into negative territory, as manufacturers and producers, begin to experience their order books slimming down.
During the New York session, the latest CPI data for the USA was published, the reading came in ahead of the 1.8% Reuters prediction at 1.9%. Rising by 0.4% in the month of March, the metric could indicate that the economy is building up inflationary pressures. Which could lead to the FOMC having the ammunition and justification, to raise the key interest rate above 2.5% in the medium term, perhaps before 2019 closes.
However, any such expectation was cooled after the latest FOMC minutes were released during the evening on Wednesday. The committee indicated they would continue to adopt a wait and see policy, based on concerns regarding global trade growth predictions falling and a resolution needing to be found over the China-USA tariff based, trade war. They also cited concerns over the domestic economy, backed up by the latest wage data released on Wednesday, revealing that real wages fell to 1.3% annual growth up to March, from the 1.8% recorded in February.
USD/JPY traded in a bearish pattern, threatening to breach S1 and closing out the day trading at 110.9, down -0.14%, falling below the 111.00 handle for the first trading session since April 2nd. USD/CHF continued to trade close to the parity level of 1.000, at 1.002 the major pair breached R2, as it rose by 0.26% on the day. WTI continued to rise, based on geo political tensions involving Libyan violence and OPEC cuts. The latest crude inventories rising significantly in the USA, proved to have little impact on price, as WTI closed out the day up circa 0.77%, at $64.44 per barrel. USA equity indices closed up on the day, the SPX closed up 0.35% and the NASDAQ closed up 0.69%, the tech index has now risen by over 20%, year to date.
Thursday’s significant economic calendar events will begin with Germany’s CPI reading (year on year) up to March, forecast to come in unchanged at 1.3%. Unless the metric misses or beats the forecast by some distance, it’s unlikely to impact on the value of the euro, or Germany’s DAX index. Thereafter, focus will turn to the USA, as a slew of producer price data is delivered, the most prominent of which concerns the YoY figure, forecast to come in at 2.3%. The customary release of the latest weekly and continuous unemployment claims on the USA will be published, the forecast is a slight increase, in both numbers.