ECB decision set to dominate forex markets today

Chris Lee

The impending decision of the European Central Bank looks set to dominate the foreign exchange markets today.

The Bank will announce both its deposit rate and its interest rate later in the day, and it may also provide a stimulus package designed to help flagging economies in the Eurozone – such as Germany – get back on track.

Despite perceptions among some traders earlier in the week that the Bank and those like it may be quickly running out of options, it is widely believed that the Bank is comfortable with the idea of stimulus.

Quantitative easing is also on the cards, although again this remains speculative – and some members of the Bank’s board have spoken out against this in the last month or so.

The decision will be announced at 11:45am GMT and will be followed by a press conference from the Bank’s president, Mario Draghi, 45 minutes later.

The euro showed understandable nerves as the decision approached.

The measure of implied volatility associated with the EUR/USD pair was up on Wednesday and into Thursday, and it was spotted at its highest rate since the middle of last year.

In terms of value, however, the single currency actually managed to surge overall to around $1.1028 as trading began this morning.

This represented a rise of a fifth of a percentage point, although across the whole quarter its value has declined significantly by 3.4%.

Analysts are still not certain what exact moves the ECB will take.

However, it is widely expected that the deposit rate will go down by ten basis points or so.

Elsewhere, the US dollar index, a tool which monitors the performance of the greenback in direct comparison to six other currencies and primarily the euro, suffered a little from the euro’s slight rise.

The index was down and was spotted at 98.528 at one stage.

This development came despite some progress in the US-China trade negotiations.

China announced on Wednesday morning that it would keep a defined set of US goods away from import duties, which was interpreted by some as an olive branch.

US President Donald Trump has announced that a planned rise in duties on imports of Chinese goods into the US would be put off by a couple of weeks.

The main victors of this development was not the greenback but were in fact the export-heavy currencies.

The Australian dollar, which is deeply linked to Chinese trading fortunes, went up to its highest position in a month and a half in its pair with the US dollar.

It reached a high point of $0.6887 in the AUD/USD pair.

The offshore Chinese yuan was up by half a percentage point as well.

It reached its highest state in almost a month at 7.0737 to the US dollar.

However, the dollar did manage to surge in one of its pairs.

It went up against the Japanese yen, which is known for attracting traders’ attention mostly during times of uncertainty.

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