The euro made solid gains against the US dollar climbing 1.5% from an opening price of 1.1076 to a day’s high of 1.1234, after Mario Draghi suggested more policy easing could be needed.
Draghi said it could be risky to delay additional stimulus for the Eurozone, hitting back at a warning from Germany's Bundesbank that the ECB shouldn't overreact to lower inflation.
The ECB must consider whether to boost its €1.5 trillion stimulus next month to bolster low inflation. While some ECB officials think the sharp drop in oil prices are temporary, others argue that it could become a fixture if it starts to feed through into wages and other prices.
The slowdown in emerging economies is posing a threat to recovery in the euro area with the European Commission trimming its 2016 growth forecast and warning inflation would be much slower than expected. They see CPI growth averaging just 0.5 percent this year.
Australia’s retail sales report for December missed expectations, coming in flat against forecasts for an increase of 0.5%. At 0.02%, it was the smallest monthly increase since July 2015.
The RBA’s monetary policy statement noted that low inflation may provide scope for further easing. The bank maintained the same forecasts for its 2016 GDP and CPI forecast from the November 2015 report. GBP/AUD trades at 2.0223 this morning.
UK News
The pound suffered losses across the board after the Bank of England’s MPC voted unanimously to keep interest rates on hold. No change had been expected but the 9-0 decision means the first UK interest rate rise is moving further away.
GBP/EUR fell sharply to a low of 1.2988 after the announcement, but clawed back some of the losses climbing to 1.3066 during afternoon trading. Its opens this morning lower at 1.2965.
GBP/USD traded in a similar pattern upon the BoE release falling to a low of 1.4534 but worse than expected US jobs data sent the pair back up to 1.4658, near the 1.4663 high of the day. Overnight we have seen another reversal and on the London open Cable is back down to 1.4512, dropping through support at yesterday’s low.
In a policy summary the Bank of England cut its forecasts for UK growth, inflation and wage rises. Interest rate rise expectations have now been pushed back from October 2016 to as far as March 2018.
With a quiet domestic schedule today all eyes will be on data releases across in the US, with Average Earnings, Non-Farm Payrolls, and the US Unemployment Rate expected at 1.30pm UK time.
