Draghi Goes All In

On broadly anticipated lines, the ECB President delivered on most of his promises by announcing measures to regulate borrowing costs in the region. Though it perked up risk sentiment across markets, it remains to be seen how far the ECB could stretch itself to address the region’s debt crisis. With yesterday’s much anticipated event drawing to an end, the non-farm payrolls data from the US later today holds prime focus and would provide food for thought on the possibility of QE3. On expected lines, the BoE’s policy meeting garnered limited attention wherein the central bank stayed put on its monetary stance.

Pound Sterling – UK Markets

The Pound maintained its upward momentum against the greenback in yesterday’s trading session after the announcement of unlimited bond-purchase programme by the ECB President, Mario Draghi, to lower interest rates in peripheral economies, spurred risk appetite among market participants. However, Sterling hovered in a tight range against the Euro, as the BoE stuck to its current target of asset purchase and its benchmark interest rate, amid signs of domestic economic recovery. In today’s trading session, the Pound has held on to its yesterday’s gains against the US Dollar, as UK’s monthly industrial production showed a sharp rebound for July. However, producer price inflation data revealed that input prices climbed in August, as oil prices remained stubbornly high. Meanwhile, the OECD sharply downgraded its 2012 growth forecast for the UK economy, as the nation bears the brunt of austerity measures undertaken by the coalition government. Today’s focus is expected to be revolve around US non-farm payrolls data, while the NIESR’s GDP estimate will also hold significance.

US Dollar – US Markets

Global risk sentiment improved yesterday after the ECB’s plan to tackle the region’s debt crisis was well-received and led the greenback lower against its peers. The ECB President lived up to expectations by announcing measures to curtail borrowing costs in debt laden nations in order to ease fiscal worries engulfing the region. Meanwhile, market focus has now shifted to the US labour market ahead of the non-farm payrolls data later today which would serve as a key reference point for forecasting the Federal Reserve’s move in the next monetary policy meeting. Market participants seem to have scaled up their expectations from jobs data following yesterday’s ADP employment report that showed the highest job additions in five months while jobless claims slid more than expected last week. Further watering down hopes of QE3, data indicated that services sector was insulated from external shocks. With the US Dollar trading lower against the majors this morning, we expect the employment data to hold key for risk sentiment and lay the foundation for the monetary policy meeting in the US slated next week.

Euro – European Markets

A highly anticipated move to lower borrowing costs of indebted nations came into fruition after the ECB President, Mario Draghi, unveiled a potentially unlimited bond repurchase program and led the Euro higher against the majors yesterday. Immediate results followed as the Spanish bond yields witnessed a considerable decline. Contrary to some market expectations, the central bank retained its benchmark rate at 0.75%. With the ECB President evidently laying the groundwork for Spain to seek further assistance, the nation’s Prime Minister, Mariano Rajoy, showed no urgency in demanding fresh aid at his meeting with the German Chancellor. Additionally, doubts of the ESM coming into force continue to linger, as markets await the German constitution court’s verdict next week. The Euro has continued to maintain its positive trend against the US Dollar this morning on prevalent risk appetite following yesterday’s remarkable move from the ECB. With the ECB reviving optimism among market participants, all eyes are now expected to shift towards the employment data from the US for cues whether the Fed manages to keep the buoyancy intact.

Other Currencies – Highlights

The Canadian Dollar has climbed against its major peers in today’s trading session, as risk sentiment received a boost after Mario Draghi announced key measures to address problems surrounding the peripheral economies. Additionally, data released yesterday revealed signs of improvement after ADP payroll figures revealed that the private sector added more than 200K jobs last month. This has turned the tide in favour of the Canadian Dollar ahead of today’s jobs data from the US, given the close link between the Canadian economy and US growth. Markets are also expected pay attention to Canadian employment data later today which is forecast to indicate that the nation’s employers added jobs in August following a decline in the prior month. Additionally, today’s building permits and manufacturing PMI data also holds significance for the Canadian Dollar against the majors.