Euro comes under renewed pressure after ECB cut rates

Thursday, September 04, 2014

European equity markets continued their recent uptrend and posted strong gains for a second consecutive session today, as robust economic data from the US and Germany increased risk appetite, while the European Central Bank surprised the markets after cutting interest rates.

The DAX and CAC indices gained 1% and 1.6%, respectively, while the IBEX surged almost 2%. However, the London benchmark index missed the uptrend and finished the session fairly flat at 6877, despite the Bank of England kept interest rates unchanged, as widely expected. 

DAX Index

DAX Index (Deutsche Boerse AG Ge 2014-09-04 17-31-17

On the macroeconomic front, US Challenger layoffs cuts fell sharply by -20.7% in August, compared to a 24.4% rise in July, while initial jobless claims increased by 302,000 last week fairly in line with expectations. US Markit services PMI surged to 59.5 in August beating expectations of 58.5, while Bloomberg’s consumer confidence increased to 37.7 in August compared to 37.3 in July. The ISM non-manufacturing index climbed strongly to 59.6 in August beating estimates of 57.7, expanding in August at the fastest pace in nice years.

US ISM Non-Manufacturing Index

NAPMNMI Index (ISM Non -Manufactu 2014-09-04 17-31-58


However, the main surprise came from the European Central Bank which cut its main refinancing rate to 0.05% from 0.15% in an attempt to stimulate growth in the European economies. The ECB also cut its deposit facility rate to -0.2% from -0.1% and its marginal lending facility to 0.3% in September from 0.4%,

The euro came under renewed pressure following the ECB action today, breaching below 1.30 for the first time since July 2013. In addition, the ECB hinted that further measures of QE will be used if needed.  

EUR breached below 1.30

EURUSD Curncy (EUR-USD X-RATE)   2014-09-04 17-31-02


Tomorrow, all eyes will be on the US non-farm payroll report especially following the encouraging employment figures today. The Dow Jones index posted fresh gains today following robust key economic data, as risk appetite increased. 

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