The day did not start well for the GBP/USD cross as the pound lost the gains it made against the dollar during trading yesterday. Sterling/dollar slipped back towards $1.6730 this morning as the markets tried to anticipate the announcements from the Bank of England and European Central Bank. Any decline was short-lived though and the pound quickly recovered, breaking back through $1.68 to reach a high of $1.6806.
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Today was an important day in the currency markets with key announcements coming from the Bank of England (BoE) and European Central Bank (ECB). There were no real surprises from the BoE as interest rates remained at 0.5% and there was no change to the Asset Purchase Facility. The big news of the day came from the ECB president Mario Draghi. After hinting last month that the central bank were ready to act in June, everyone was keen to see if Mr Draghi would live up to his word.
He didn't disappoint, the ECB have decided to cut interest rates from 0.25% to 0.15% and implement a negative deposit rate for banks. So what impact did this have? The news had an immediate impact on the euro with the GBP/EUR cross rising nearly a cent in a matter of minutes, reaching a fresh high and leaving the cross close to its highest level in 19 months. GBP/USD also benefitted from the news pushing rates back over $1.68 for the first time since 28th May.
Why has the news from the Eurozone impacted GBP/USD?
The announcement from the ECB has left the pound as the currency of choice. As I said in my post yesterday it looks as though the BoE will raise interest rates before any of its major peers, making it a more attractive investment. Although there was no talk of rate rise from the BoE today, market players will be looking forward to the BoE minutes which will be released in a couple of weeks. The minutes could give us some clues about the stance of MPC members and when a rise could take place, especially as the UK economy has been performing so well of late.
Any hints of when a rise will take place will give investors extra confidence and it is likely we will see the pound gain ground across the board. In the meantime, tomorrow sees the release of the U.S non-farm payroll job numbers are they are sure to cause some market volatility.
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