The ECB cut the deposit rate to -0.50% and re-introduced bond-purchases from November.

The ECB cut the deposit rate to -0.50% and re-introduced bond-purchases from November.

There was notable opposition to resuming bond purchases from at least 5 countries while Draghi pushed fiscal stimulus more aggressively.

The Euro declined sharply in an initial response before reversing sharply to post net gains after EUR/USD found support at 2-year lows around 1.0925. Stronger than expected US core inflation at 11-year highs helped underpin USD/JPY.

Risk appetite was boosted by report that the US and China wanted to ease trade tensions, although reports of a limited trade deal were denied by the White House.

Bond markets reversed with US and German yields higher while equity markets made net headway.

Oil prices were hampered by underlying demand reservations and cautious OPEC rhetoric with commodity currencies unable to make headway. There was choppy trading in precious metals with little net change as sharp gains after the ECB rate cut reversed quickly.

At its policy meeting, the ECB cut the deposit rate to -0.50% from -0.40% which was in line with consensus forecasts, although some banks had forecast a deeper cut while the main refi rate was maintained at 0.0%, in line with expectations. The bond-purchase programme will resume from November 1st at a rate of EUR20bn per month with no time limit.

In contrast to recent sessions, Sterling was not the focus of attention on Thursday as the ECB policy decision dominated markets while there was also a slight lull in domestic political activity. EU officials were very cautious in their assessment and claimed that no workable proposals had been received from the UK government. Speaker Bercow warned that there would be more aggressive action if the government attempts to by-pass the law ruling out an October ‘no-deal’ Brexit.

A firmer tone surrounding global risk appetite provided an element of UK currency support during the day. GBP/USD below 1.2300 following the ECB policy meeting before recovering to near 1.2350, while GBP/EUR dipped to the 1.1150 area.

Reports of a potential breakthrough on Northern Ireland regulation were downplayed by DUP leader Foster and the UK currency was little changed in early Europe on Friday as GBP/USD traded just above 1.2350.

Economic Calendar

Expected Previous
10:00 Euro-Zone Trade Balance(JUL) - 20.6B
11:00 The Eurogroup Meeting - -
13:30 USD Core Retail Sales (M/M)(AUG) -1 1.00%
13:30 USD Advance Retail Sales (M/M)(AUG) 0.30% 0.70%
13:30 USD Export Price Index (M/M)(AUG) - 0.2
13:30 USD Import Price Index (M/M)(AUG) - 0.20%
15:00 USD Business Inventories(JUL) 0.10% 0.30%
15:00 USD Michigan Consumer Sentiment(SEP 01) 97.2 98.4

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.