The much-awaited risk events taking place over the course of the day began with the European Central Bank policy meeting followed by the press conference by President Mario Draghi. The UK general elections are in progress with exit polls expected at 21:00 GMT.
The euro briefly dipped below $1.1200 after the ECB policy decision was announced as the market was looking for a more hawkish signal.
The ECB left rates unchanged as was widely expected but dropped its easing bias in its forward guidance. The main refinancing rate was left at 0% and the deposit facility rate at 0.4%. The asset purchase program remained at 60 billion euros a month but Mario Draghi said during the press conference that the timing of the tapering decision was not discussed.
The positive in the ECB statement was that the reference to lower rates was dropped although this would have been expected given the improving economic environment in the Eurozone as growth is picking up. There was some disappointment with the ECB’s outlook on inflation. It revised its projections lower to reflect a drop in oil prices and highlighted that inflation remains subdued. But it lifted economic growth projections through 2019.
Apart from the ECB’s rate decision, the main economic releases in today’s European session pertained to jobless claims out of the US and Eurozone first quarter revised GDP estimates. The latter two were largely shrugged off by investors as the day’s focus was on the ECB policy meeting and subsequent press conference by President Mario Draghi, as well as James Comey’s testimony before the US Senate.
The number of US jobless claimants for the week ending June 3 came in at 245,000, above the 240,000 expected but at an improvement over the 255,000 (upwardly revised from 248,000) in the week before. In aggregate, the figure is positive and points to a tightening labor market as claims have been below 300,000, a number linked to a healthy job market, for 118 consecutive weeks, the longest since 1970. Looking at the number of claimants continuing to receive benefits after an initial week of state help, those remained below 2 million for an eighth week in a row, pointing to improved labor market conditions. In terms of market reaction, dollar/yen experienced only a minor fall a few minutes after the data were released and remained above the 110-yen level.
Revised GDP estimates for the first quarter of the year out of the Eurozone showed the region growing at a faster pace than previously thought. Specifically, the quarterly growth rate came in at 0.6%, slightly above expectations, the flash estimate and the previous quarter’s respective growth, all at 0.5%. On a yearly basis, the Eurozone economies expanded by 1.9%, again above forecasts and the flash estimate, both standing at 1.7%. The respective growth during the fourth quarter of 2016 was 1.8%. First quarter growth constitutes the fastest rate of growth for the Eurozone in a year. The annualized growth rate for the quarter stood at 2.3%, favorably comparing to the US’s 1.2%. The single currency failed to move much relative to the greenback after the data release.
The monthly figure for German industrial output for the month of April was released today showing output growing by 0.8%, outstripping expectations of a 0.5% growth and the previous month’s -0.1% (upwardly revised from -0.4%). This is good news for the sector and the German economy overall and should ease any concerns after yesterday’s industrial orders number surprised to the downside. Euro/dollar didn’t react much as the data hit the markets.
Sterling peaked at a two-week high of $1.2976 in early European trading before reversing back down to $1.2907 as voting gets underway in the UK. Final opinion polls showed Prime Minister Theresa May’s Conservatives might win a majority but this was already becoming priced in by the markets. A potential loss or hung parliament would be negative for the pound.
Investors will closely monitor the US Senate testimony by former FBI Director James Comey. The outcome of his testimony could have significant repercussions for Donald Trump’s presidency.
Taking a quick look at commodities, oil extended losses following Wednesday’s 5% tumble, with WTI crude reaching a one-month low of $45.20 a barrel. Gold dropped to $1271.18 an ounce, a one-week low, on profit taking.