IFX Market Report: Friday 23rd July 2021

FX markets remained relatively flat on Thursday following the European Central Bank’s (ECB) latest Interest Rate Decision. Christine Lagarde and ECB policymakers decided yesterday to “keep buying bonds and maintain its deeply negative interest rates in an attempt to shift the eurozone economy out of its persistent pattern of sluggish inflation”. The ECB president went on to add that while expectations of “strong growth” for Q3 are forecasted, the outlook for inflation was “subdued”. She also noted that the global spread of the COVID-19 Delta variant was “a growing source of uncertainty”. In regard to its bond buying program Lagarde was clear that the Eurozone still has “some way to go before the fallout from the pandemic on inflation is eliminated”. This statement provided clarity to some investors that it is highly unlikely the ECB will be tapering it bond buying any time soon. Following the announcement Germany’s 10-year yield was down by 0.2%, and Italy’s 10-year yield also fell. The Euro also weakened somewhat against the Dollar.

Across the pond, sadly the economic outlook is growing increasingly bleak. Both Continuing Jobless Claims and Initial Jobless Claims came in above forecast, with the latter hitting a 2-month high. Forecasted at 3100K, Continuing Claims gave an actual reading of 3236K, while Initial Claims came in at 419K, despite being forecasted at 350K. This spike in jobless claims clearly indicates that the US’ labour market troubles are still prominent despite the economy reopening and the Delta variant may yet prove to be a further hinderance as the US attempts to achieve an economic recovery. The US Dollar Index (DXY) depreciated as this data was released, indicating that if the US’ labour difficulties persist, the Dollar will likely fall.

Disappointing US data yesterday enabled Sterling to claim minor gains on the Dollar. GBPUSD opened the day at 1.3716 and closed the session at 1.3755.

GBPEUR also gained some upside on Thursday. The pair opened at 1.1630 and finished the day at 1.1666.

While the pair experienced some volatility as Lagarde spoke yesterday, EURUSD remained largely unchanged on the day. The pair started the day at 1.1793 and closed at 1.1791.

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