IFX Market Report: Friday 7th June 2019

The euro rallied yesterday after the European Central Bank surprised markets by not mentioning or hinting at an interest rate cut but instead chose to defer a rate rise, which would be the first since 2008, to the second half of 2020. Before the announcement analysts had priced in a 75% chance of a 10-basis point rate cut by the end of 2019, but this reduced to 45% following the press conference.

The US dollar fell on Thursday afternoon ahead of today’s highly anticipated US Non-Farm Payrolls report which is forecast to show slowing growth and potentially reinforce the argument for the Federal Reserve to reduce interest rates in 2019.

The dollar index fell to a 2-month low of 96.749, in line with this week’s downward trend on the back of trade tensions, weak data and dovish comments from the Fed. Some analysts say the markets had predicted a potential rate cut by the Federal Reserve about six months before the central bank started indicating they would take that course of action.

EURUSD opened at 1.1233 and was largely unchanged in the morning, rising sharply on news from the ECB and closing at a high of 1.1297

The pound lacked any direction on Thursday as investors look unlikely to take any strong positions on the pound until the leadership contest to succeed Theresa May is concluded. In addition, monetary signals from the Bank of England will do little to move the pound as most traders believe that the central bank will not raise interest rates until Britain’s exit from the EU has been clarified. Forecasters have indicated that the pound would trade between 1.15-1.20 against the dollar within a month of a no deal Brexit and between 1.04 and 1.09 against the euro.

GBPUSD opened at 1.2689 and rose to a high of 1.2730 just after midday. The pair then fell back down to close at 1.2709

GBPEUR opened at 1.1288 and briefly hit a late morning high of 1.1303 before falling sharply, after comments from the ECB, to close near a low of 1.1252

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