European Central Bank hints at further cuts while it keeps policy unchanged

Matthew Ryan22/Apr/2016Currency Updates

A volatile trading session on Thursday ended with the major currencies mostly unchanged for the day following the European Central Bank’s April monetary policy meeting.

There were no major surprises from the ECB yesterday, with the Governing Council leaving its monetary policy unchanged, as was universally anticipated.

The main refinancing and deposit rates were held at 0% and -0.4% respectively, while the central bank will continue to purchase 80 billion Euros a month in asset purchases. Policymakers opted to wait for evidence that last month’s additional stimulus measures will provide a boost to both growth and inflation before committing to more.

Mario Draghi’s statement also offered little new information. He warned that inflation could turn negative in the coming months, with risks from abroad tilted ‘to the downside’. The economic recovery is, however, expected to proceed amid broadly improving financial conditions.

Critically, Draghi left the door open to further easing by hinting that additional ECB rate cuts were possible, with rates to remain low well beyond the horizon of asset purchases. The central bank will continue to use ‘all instruments’ in order to ensure inflation and growth return to their target levels.

The immediate spike in the Euro was therefore somewhat surprising, given his comments last month that lower rates were ‘unlikely’.

We expect the Euro to bounce around current levels until the Federal Reserve reinforces its message that rate hikes are coming in the US in 2016. Attention therefore turns to the Fed’s April interest rate decision on Wednesday.

Away from the ECB, Sterling ended more or less unchanged for the day against the US Dollar, despite a fairly abysmal set of retail sales figures.

Earlier, Sweden’s central bank, the Riksbank, again ramped up its quantitative easing programme by a further 45 billion SEK in order to tackle stagnant inflation.

Major currencies in detail:


Despite a strong rally in early afternoon, the Pound ended 0.1% lower against both the US Dollar and Euro.

Retail sales in the UK massively undershot expectations yesterday. Bad weather and an early Easter caused sales to increase by just 2.7% in the year to March, only modestly higher than the lowest reading since late-2014.

Sales excluding fuel fared even worse, expanding just 1.8% on an annualised basis having plunged by 1.6% in the month. This marks the weakest growth in sales since April 2013 and bodes poorly for overall UK economic growth, which looks certain to have slowed in the first quarter of this year.

No economic announcements in the UK today could lead to a quiet session for Sterling.


The single currency fell by 0.1% against the US Dollar on Thursday, having earlier touched its strongest position in over a week.

President Draghi’s press conference struck a defiant tone yesterday, with Europe’s top central banker defending the ECB’s large-scale easing measures. Draghi faced criticism from a number of German officials who suggested the central bank had overstepped the mark in its ultra-low rate policy.

He also dismissed claims that the ECB was ready to issue so-called ‘helicopter money’, claiming the bank had ‘never discussed’ the measure as a means to bolster the Eurozone economy.

A string of PMIs from Markit this morning will draw most focus in the Eurozone today. The Euro-wide manufacturing and services indices are expected to show a very modest uptick.


The US Dollar index recovered in afternoon trading to finish unchanged yesterday.

The US labour market continues to brush aside a recent slowdown in the global economy. Jobless claims plunged last week, falling to a fresh 43-year low of 247,000, comfortably better than anticipated.

The four-week moving average unsurprisingly fell, declining to just 260,500 in another clear sign that the US jobs market is in a healthy enough position to warrant further Fed interest rate hikes this year.

By contrast, the Philly Fed manufacturing survey declined sharply for the month, plunging back into negative at -1.6, with a relatively strong US Dollar and weak global conditions continuing to provide a drag.

US manufacturing growth from Markit today will be the only major announcement in the US, with attention likely to turn to next week’s Fed meeting.


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Written by Matthew Ryan

Strategy Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.