The Federal Reserve’s decision yesterday to raise interest rates is being followed up by the European Central Bank’s decision this morning to leave rates unchanged until summer 2019. The euro and pound are falling on the news. There is also no lack of economic drivers this morning as U.K. and U.S. retail sales for May debut.
ECB to hold rates for more than a year
The EUR/USD and GBP/USD pairs are plummeting on news that the European Central Bank will hold interest rates for more than a year.
Earlier in the morning, the ECB announced it would keep rates at 0%. The euro, however, briefly spiked after the bank said it would end its bond purchase program by December. The quantitative easing approach by the ECB was enacted during the economic crisis a decade ago.
Now that ECB President Mario Draghi has started his press conference, the euro is falling even further on his comments. Draghi said that the tapering of asset purchases and end of QE is data dependent
EUR/USD fell more than 100 pips from 1.182 to 1.166. After the Fed’s hawkish comments yesterday, the pair fell from 1.178 to 1.173, but slowly inched higher throughout the rest of the day.
The GBP/USD pair is also falling due to the ECB. The pair sits around 1.332 from highs above 1.344.
Fed sees two more rate hikes in 2018
The Federal Reserve confirmed everyone’s prediction that they would raise interest rates yesterday, pushing the rate from 1.75% to 2%.
However, it was the hawkish stance by the Fed that pushed the dollar higher. According to the dot plot projection, most members of the FOMC predict two more rate hikes this year. That brings the total rate hikes for the year to four. Before yesterday’s meeting, there was uncertainty whether there would be three or four hikes in 2018.
The Fed also announced that Chairman Jerome Powell would hold a press conference and Q&A after every FOMC meeting starting in January 2019. Markets reacted positively to the news as it gives investors more insight into the FOMC decisions and statements.
There was a surprise later in the day when the People’s Bank of China decided to hold rates, showing more confidence in the yuan.
Dual retail sales on the up and up
The U.S. and U.K. retail sales for the month of May both beat expectations. The U.S. numbers, the more recent of the two, are lifting the dollar against the Japanese yen as well as the pound and the euro, which are down on the ECB commentary.
U.K. retail numbers for May grew 1.3% month over month and 3.9% year over year, compared to estimates of 0.5% and 2.4% respectively. Excluding fuel, retail sales jumped 4.4% year over year, compared to estimates of 2.5%. The GBP/USD pair spiked on the news overnight, rising from 1.340 to above 1.344.
U.S. retail sales grew 0.5%, compared to estimates of 0.4%. Excluding autos, sales increased 0.9% month over month, compared to 0.4% estimates.