ECB Keeps Key Interest Rates On Hold

EUR/USD
The pair initially traded within a tight range in the first half of the session as participants awaited the ECB rate decision. Despit mounting speculation for a potential rate cut, the median expectation of no change to ECB policy was proven to be correct as the ECB kept all three key interest rates on hold and thus EUR saw an unwinding of dovish bets from those participants who were expecting the central bank to act upon the recent disinflationary concerns. With the pair residing in positive territory following the release, participants then looked towards the accompanying press conference as the next source of price direction. Against the grain of expectation Draghi refrained from making an announcement on the suspension of sterilisation of the SMP programme and said the ECB are firmly determined to maintain a high degree of monetary accommodation and to take further decisive action if required. This rhetoric from Draghi saw a further short squeeze in EUR and thus ensured the pair finished the session in positive territory, with the ECB also upgrading their 2014 growth forecast.

GBP/USD
In a similar nature to EUR/USD, volumes were thin for the pair in the first half of the session as participants looked towards today’s decision from the BoE. As was widely expected, the BoE made no change to their monetary policy with the central bank seeing extra slack in the economy and the unemployment rate above the 7.0% threshold. Upon this, the pair did see a knee-jerk reaction higher of around 25 pips before paring the entire move to trade near pre-announced levels, with the Gilt reinvestment program by the BoE also coming in line with expectations of an even split across the curve. In a cross-driven move following the releases from the ECB, both GBP and USD were heavily weighed upon by EUR and thus saw GBP/USD trade relatively unchanged for the session.

USD/JPY
In Asia-Pacific JPY saw weakness amid commentary from Japan’s Health Ministry panel who recommended the GPIF move away from passive investment and domestic bond and thus saw support amid an increase in risk sentiment. Following this, the pair traded in a relatively rangebound manner as participants positioned for the key risk events for the session. Despite the lower than expected weekly claims data from the US, the main source of price action for the pair was provided by the broad-based EUR strength which weighed heavily upon EUR/JPY and thus saw some reprieve for the greenback against JPY. This consequently extended the earlier gains for the pair and ensured USD/JPY finished the London session in positive territory.