- The ECB triggered a sell-off in the euro which dropped to a two-year low of 1.1101.
- The advance U.S. goods trade deficit narrowed less than expected ahead of GDP.
Forex today was driven by concerns over a pending turndown in global growth as the ECB announced that fresh stimulus is on the way, sinking the euro to a fresh low of 1.1101. The U.S. dollar picked up a bid and the DXY rallied to the highest levels since mid-June with eyes now on the 98 handle ahead of tomorrow’s U.S. Gross Domestic Produce and next week’s Federal Reserve interest rate decision.
As for US data, the advance U.S. goods trade deficit narrowed less than expected in June to $74.2bn from $75bn which helped to provide upward pressure on US 10-year yields which rose 4bp to 2.084%. However, wholesale and retail inventories rose less than expected, which analysts at Westpac argue will be prompting downward revisions to Q2 GDP expectations (due Friday) despite the strong durable goods orders. As for the ECB, the statement was very dovish, as expected, laying out a very accommodative framework for monetary policy; albeit Draghi said the risk of recession is “pretty low”.
Analysts at ANZ explained that forward guidance is that rates will remain at current levels or lower at least through the first half of 2020: “To open up room for lower interest rates, the ECB is examining options for tiering the deposit rate in order to minimise the impact on bank profitability, and it is also looking at possible additional QE. Euro area surveyed manufacturing data has been terrible recently. Both the inflation and growth outlooks are deteriorating and we expect the ECB to deliver a comprehensive, broad package of unconventional easing in September.”
Indeed, the ECB triggered a sell-off in the euro which dropped to a two-year low of 1.1101 before recovering back to 1.1185 during President Draghi’s press conference despite saying that the economy is “getting worse and worse.” The pound fell from 1.2522 to a low of 1.2436.
AUD was grinding lower following yesterday’s speech from RBA Governor Lowe’s who opened the door for lower rates. AUD fell to an 11-day low of 0.6932 overnight. NZD underperformed falling to 0.6650 order territory while USD/JPY shot up from 108.04 to a high of 108.75.
Key notes from Wall Street