single currency is the answer for ECB

Is your high street bank ripping you off

The ECB meeting was the market’s focus yesterday with the single currency initially strengthening as Draghi spoke before falling back once he had left the stage. The ECB President’s tone was a lot more hawkish than the market expected with the euro benefiting from the assertion that further monetary policy weakening was not on the cards anytime soon via extra money for banks or an interest rate cut.

He was quick to emphasise that Q1’s economic indicators were consistent with stabilisation in Europe, it is unfortunate however that figures so far for Q2 have suggested anything but. If the economic data continues along this path, the pressure on the ECB will only increase and we think a form of QE that keeps yields on peripheral bonds below a certain level would be a goer in this circumstance. This would see the ECB continue to buy the bonds of the countries whose yields are over a certain level in order to bring them back down to more manageable levels.

Draghi also pleaded for “perseverance” from Europe; a not entirely well-veiled reminder that Germany and the Bundesbank will not stand for people shirking their austerity responsibilities.

After it was all said and done however, the euro is very much in the same place as it was this time yesterday against the majors with the latest round of event risk coming from the elections in Greece and France this weekend. We have seen some tightening in the tracking polls between Hollande and Sarkozy as we’ve got closer to the election although this always happens and we, and the market, still expect a victory for the socialist candidate Francois Hollande.

We would expect to see people come out of risky positions come the end of trade today ahead of the election with concerns about how the Greek election could hurt the Monday open.

Even so, the market will want to get today’s Non-Farm Payrolls announcement out of the way. Expectations have dropped from around 180k jobs added in April to 160k now following Wednesday’s poor ADP reading. Yesterday’s initial jobless claims may have gone someway to keeping expectations up as we saw a 27k drop in the numner of people claiming jobless benefits. That being said there is the possibility for a serious surprise either way of the 160k consensus with a beat likely to strengthen dollar and vice versa.

As with all “Jobs Fridays” the morning session will probably be quiet although we are due services data from the EU from 8am onwards.

Have a great weekend and remember that Monday is a bank holiday in the UK so the next update will be Tuesday’s.

Indicative Rates Sell Buy
GBPEUR 1.2294 1.2321
GBPUSD 1.6163 1.6187
EURUSD 1.3130 1.3151
GBPJPY 129.55 129.64
GBPAUD 1.5757 1.5782
GBPNZD 2.0228 2.0258
GBPCAD 1.5973 1.6002
NZDUSD 0.7979 0.7999
GBPZAR 12.46 12.51
USDZAR 7.7044 7.7342
GBPPLN 5.1360 5.1672
EURJPY 105.15 105.39

Please note these rates are “interbank” rates ie they indicate where the market is currently trading and are not indicative of the rates offered. Rates are dependent on amount transacted. It is important to remember that foreign exchange rates fluctuate all the time. The rate you will receive will depend on the amount and currency you require.

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