EUR/USD sinks to an eleven year low as ECB press conference looms

United States Dollar:

GBP/USD fell yesterday following the release of weaker than expected UK services PMI. The index for February printed at 56.7 against forecasts for 57.6, and although the headline was weaker, the number was still relatively strong so it was perhaps an ominous sign for the pound that it fell on the news. As the day went on, the US dollar continued to strengthen, prompted in part by the sell-off in EUR/USD, seeing GBP/USD fall to a low of 1.5226 overnight. US ISM non-manufacturing data released yesterday printed stronger than market expectations at 56.9 against 56.5 which supported the move, although the slightly weaker ADP non-farm employment number was shrugged off. GBP/USD opens this morning at 1.5250 ahead of the Bank of England monetary policy announcement. No change in policy is expected, either to rates or QE. Most of the market’s focus will be on the ECB monetary policy decision and accompanying statement today, with particular attention given to Draghi’s accompanying statement given that the central bank are expected to leave rates and QE unchanged.

We expect a range today in the GBP/USD rate of 1.5180 to 1.5300.

Euro:

EUR/USD fell to an eleven year low yesterday as various stops in the pair were triggered. It was also in reaction to weaker than expected European PMIs; German, eurozone, Italian and Spanish services PMIs all printed weaker than expected whilst French services PMI printed in line with market forecasts. There is also a bit of nervousness ahead of today’s central bank announcement and accompanying press conference. As mentioned above, no change in rates or QE is expected but there’s a good chance that Draghi will sound as dovish as he ever has in his statement and Q&A session. That said, rumours and facts often diverge, which could mean there’s a bit of an upside risk in EUR/USD post-press conference. In the meantime, the euro is weak right across the board and GBP/EUR is up over 1.38 currently – we will see if this lasts come ECB press conference time.

We expect a range today in the GBP/EUR rate of 1.3760 to 1.3860.

Aussie and Kiwi Dollars:

AUD/USD bounced to .7855 yesterday afternoon, but then fell back towards the .78 figure overnight as RBA Deputy Governor Lowe spoke. His comments didn’t come as too much of a surprise as he referred to the aussie dollar being too high. He said, “with our exchange rate higher than it otherwise would have been, domestic demand has been a bit weaker.” He also left the door open to further cuts in interest rates. NZD/USD is being sold more heavily this morning, dragged lower in part by the decline in the aussie dollar, but also the broad strength of the USD. It trades at .7525 currently.

We expect a range today in the GBP/AUD rate of 1.9400 to 1.9580.

We expect a range today in the GBP/NZD rate of 2.0180 to 2.0380.

Data releases for the next 24 hours:

AUD: No data

EUR: Retail PMI, Minimum Bid Rate, ECB Press Conference

GBP: Official Bank Rate, Asset Purchase Facility, MPC Rate Statement

NZD: No data

USD: Unemployment Claims, Revised Nonfarm Productivity q/q, Revised Unit Labour Costs q/q, Factory Orders m/m