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Currency Market Update - 7th June 2024

Currency Market Update The ECB (European Central Bank) lowered their borrowing costs for the first time in five years from an all time high by 25 basis points down to 4.25%. This did not come as a shock to markets as it was an expected next step from the European Central Bank. Seeing small gains for the EUR against both GBP and USD when Thursday’s session closed.

Did we get a glimpse of forward guidance from President Christine Lagarde? Well, she said in the press conference after that this likely is a starting point of dialling back on interest rates but that it’s evident that they will have to be guided by economic data in the upcoming months. Suggesting that ECB will now follow the development of inflation levels, that has been on a recent upswing before making another policy decision. Several members from the ECB ruled out another monetary easing for the upcoming meeting in July. Even markets lowered their bets for a rate cut in September from 70% to 60%, contributing to EUR steadiness.

In the two upcoming weeks we will have announcements from the Federal Reserve and Bank of England on their forward guidance, with BoE most likely to lower their borrowing costs – seeing a split of member votes in their last meeting (7vs2 in favour of holding rates). If we look at recent market performances, we can see that USD has lost its edge with both GBP and EUR showing signs of momentum in the last six weeks. This began with forward guidance from Federal Reserve members back in end of April indicating that interest rates should commence to be lowered in September. Since then, we have had a combination of both economic data and announcements signifying a greater chance of this happening.

Focus moved from following inflation levels to concentrate more on labour figures and this week we have already seen ADP employment levels decrease on Wednesday followed by applications for unemployment benefits yesterday increasing to 229k. Potentially showing signals ahead of non-farm payroll that is released this afternoon, that is forecasted to increase by 10k from April to a total of 185k. Markets have so far this Friday session been flat and is awaiting the release at 1.30pm that could swing USD-pairs.

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