IFX Market Report: Friday 26th July 2019

The euro recovered yesterday afternoon after falling to a two-month low against the US dollar as the European Central Bank announced they would leave interest rates on hold.

Traders had initially sold off the euro in the morning as markets had priced in a 50% chance of a rate cut at yesterday’s monetary policy meeting, but the move by the central bank to defer a rate cut and President Mario Draghi’s less dovish and almost optimistic outlook on the Eurozone economy caused as surge in euro buying.

However, the central bank’s statement said interest rates would stay “at their present or lower levels” and hinted towards measures for quantitative easing in the future so any further gains for the euro are likely to be capped for the time being. Investors now believe that the ECB will be cutting rates in September in order to counter low inflation and boost economic growth.

EURUSD opened at 1.1127 and dropped to 1.1102 but rose sharply to a high of 1.1181 following the rate announcement. The pair stabilised in the afternoon and closed marginally up on the day at 1.1152.

The pound was largely unchanged on Thursday as Prime Minister Boris Johnson selected a cabinet of Brexit-leaning politicians and continued to promise a 31st October exit from the EU. Investors remain long-term bearish on the pound but yesterday sterling gained 0.2% against the dollar at one point. The conversation now turns to whether Johnson can secure concessions from the EU whilst they maintain there is no scope for negotiation.

GBPUSD opened at 1.2472 and reached an early afternoon high of 1.2510 before dropping down sharply to close at 1.2448

GBPEUR opened at 1.1213 and reached a high of 1.1240 before falling back to close at 1.1177

Elsewhere, the US dollar hit a one-week high against the yen while the Swiss franc hit a two-year high against the euro. The Australian dollar hit a two-week low against the dollar.

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