The ECB extended forward guidance on zero interest rates

Posted: 7th June 2019

Daily market report June 7th 2019

Market highlights



The ECB held interest rates steady following the latest policy meeting, in line with consensus forecasts, with the refi rate remaining at 0.0%. There was a further shift in forward guidance with interest rates expected to remain at their present levels at least through the first of 2020. The ECB also announced terms for the latest longer-term financing operations at a rate of 10 basis points above the refi rate while terms would be more favourable if lending exceeded a threshold.

The Euro moved higher with TLTRO terms slightly less generous than expected and dovish guidance priced in.

President Draghi reiterated that Euro-zone growth risks were tilted to the downside and that ample monetary accommodation is needed with headline inflation liable to decline over the next few months. There was actually a slight upward revision to the 2019 GDP growth forecast with the 2020 projection lowered slightly while inflation forecasts were little changed.

Markets were expecting a more dovish ECB stance and German yields moved higher following the rhetoric as there were no suggestions that there would be any short-term move to cut interest rates. EUR/USD continued to move higher on short-covering before further strong selling at the 1.1300 area. Draghi also stated that there was a readiness to act in the case of an emergency which pushed EUR/USD to 1.1250 before fresh buying as dollar sentiment remained fragile.

There was an element of caution ahead of Friday’s US employment report, especially after the large miss on ADP data earlier in the week with the Euro drifting lower after weaker than expected German trade and industrial production data.


US jobless claims increased to 218,000 in the latest week from 215,000 previously as continuing claims also increased. The trade data was close to consensus forecasts while there was a larger than expected decline in first-quarter unit labour costs of 1.6% compared with expectations of -0.8%. The Challenger data recorded a sharp increase in layoffs for the May and there has been a 39% increase for the first 5 months of 2019 which caused some unease over underlying trends.

US Treasuries drifted higher in early US trading with the 10-year yield around 2.10% and the dollar retreated to near 108.00. Volatility eased slightly with USD/JPY settling around 108.20 at the European close.

New York Fed President Williams was relatively hawkish in his comments as he looked to push back against potential interest rate cuts. Risk appetite also strengthened after reports that tariffs on Mexico could be delayed with USD/JPY advancing to the 108.50 area. Risk appetite was steady in Asian trading on Friday and the US currency resisted fresh losses despite weak yield support.


Bank of England Governor Carney stated that if the economy continues to perform in line with central bank expectations, the bank expects that upward pressure on prices will build and that the bank will have to raise rates further to keep inflation on target, although increases would be gradual and limited. Sterling briefly moved higher following the comments, especially with other central banks tending to promote a looser monetary policy, but sellers quickly took advantage of rallies.

The UK currency was still unsettled by concerns over the global growth outlook and further weakness in energy prices. There was also inevitable caution as markets waited for political developments. EUR/GBP advanced to the 0.8890 area while GBP/USD hit selling interest above 1.2700. There was little change on Friday with markets monitoring developments in the Conservative Party leadership contest with Prime Minister set to resign formally on Friday.

Swiss franc

Underlying unease over the global economic outlook continued to underpin the Swiss franc during most of Thursday, especially with global trade tensions still a crucial market factor.

Global bond yields also declined further which provided an element of franc protection amid fragile equity-market sentiment.

EUR/CHF was able to make only very limited headway to the 1.1170 area while USD/CHF dipped back below 0.9900 in choppy trading conditions. USD/CHF edged back above 0.9900 on Friday with further choppy trading likely during the day.


The Australian dollar gained net support from a weaker US dollar during Thursday with AUD/USD advancing to the 0.6990 area.

Australian home loans data was below market expectations, maintaining unease over the housing sector and the Australian dollar was unable to gain any further traction as it retreated slightly to 0.6970 after failing to make another challenge on the 0.7000 level.

The Canadian trade deficit declined to a 6-month low of C$1.0bn for April from C$2.34bn the previous month and well below consensus forecasts of C$2.8bn as exports made headway and imports declined. The IVEY PMI index was unchanged at 55.9 for May.

The trade data helped underpin confidence in the outlook and USD/CAD declined to near 1.3360 despite further weakness in oil prices.

As oil prices recovered, USD/CAD retreated to the 1.3350 level.


Underlying concerns over the global economy continued to hamper Scandinavian currencies.

The Norwegian krone was again undermined by weakness in oil prices during Thursday while the ECB was less dovish than expected and EUR/NOK moved to highs near 9.83.

The Norwegian currency gained some relief from a rally in oil prices with EUR/NOK close to 9.80 and USD/NOK just below 8.70 while domestic industrial production recovered for April.

The Swedish krona was resilient, but EUR/SEK edged higher and settled around 10.62 with USD/SEK near 9.43.


After initial gains, Euro-zone equity markets reacted negatively to the ECB policy statement which was not as dovish as had been expected by some traders. Bourses also closed before a late rally in US equities

The Eurostoxx 50 index declined 0.05% with a larger decline in the German DAX index offset by slight gains for the Spanish and Italian bourses.

Major UK stocks were boosted by gains in precious metals and hopes for government fiscal stimulus measures with the FTSE 100 index gaining 0.5% despite global growth concerns.

After nervous trading, Wall Street expressed some hopes that progress could be made in trade talks with expectations of lower interest rates also providing net support. The S&P 500 index gained 0.6% on the day.

Asian equities made net gains with Japan’s Nikkei 225 index gaining 0.6% as the US currency rallied while the Australian ASX index gained 0.9% amid hopes for loose global monetary policies.

Chinese and Hong Kong markets were closed for holidays.


Oil prices were again undermined by fears over the global trade and growth outlook.

There was an element of support from a weaker US dollar. WTI found some support below $51.50 p/b, although gains were limited into the European close.

Prices did move sharply higher later in New York on hopes for US-Mexico trade progress and there was an important element of short covering with some speculation that OPEC would extend production cuts.

WTI spiked to just above $53.0 p/b and advanced to near $53.40 p/b on Friday with Brent close to $62.50 p/b.

Gold was boosted by a fresh round of US dollar weakness as well as underlying concerns over risk conditions. There was a peak close to $1,340 per ounce, but the failure to post fresh 3-month highs and a recovery in equities helped trigger a correction to below $1,335 per ounce.

Silver secured net gains, although there was resistance close to $15.00 per ounce.


Cryptocurrency volatility overall eased during Thursday with a slightly calmer tone in global asset prices. Demand remained limited with precious metals continuing to attract buying interest.

Bitcoin did retreat sharply at the European close with a retreat to the $7500 area before a quick recovery to near $7800 and there was little change on Friday.

Ether found support close to $235 and rallied strongly to near $250 in early Europe on Friday.


Major events for the day ahead: (times in BST)

13.30: US employment report

13.30: Canada employment report