In the build-up to today’s monetary policy meeting of the European Central Bank, the euro sunk to a two-year low against the dollar of 1.2280, depressed not by market expectations of change at the meeting itself but by expectations that the central bank’s President Mario Draghi would provide clarity in his press conference on what additional stimulus measures lie in store for the eurozone.
By Peter Martin
Friday, December 5, 2014
As expected, the ECB kept rates unchanged and Mr Draghi did deliver a dovish speech, but the hints he dropped about what action the ECB might take were not as strong as some had hoped, meaning full-blown QE looked no more likely than before. While re-iterating the Governing Council’s unanimous commitment to employ ‘additional unconventional instruments within its mandate’ should it prove necessary on account of low inflation, Mr Draghi promised only to re-assess the situation early next year, falling short of addressing the key issue of whether there is sufficient will amongst the Council to push ahead with buying government bonds. By early afternoon in New York, EUR/USD was up 0.49% at 1.2371, having pushed as high as 1.2456 in the aftermath of Mr Draghi’s speech.
Paring of the euro’s gains was sparked by a further kink in the QE debate, after Bloomberg broke a story that the ECB will be considering broad-based asset purchases, including sovereign debt, at its January meeting. This story also appeared to provide a shot in the arm to the stock market, helping the leading blue-chip stock indices to turn around and push into positive territory. By early afternoon on Wall Street, the Dow Jones was up 0.02% or 3 points at 17,916, having been close to a hundred points in the red at one stage.
Some reassurance about the health of the labor market was provided today with the latest jobless claims data from the Department of Labor showing a 17,000 drop in initial claims last week to 297,000. This was broadly in line with expectations, but will help confidence coming after the previous week’s hefty increase of 22,000, with that number now looking like more of an outlier rather than the start of a worrying trend. The size of that upward spike is still enough to adversely affect the four-week moving average, which creeps up to 299,000 from the week prior’s 294,250. Nevertheless, today’s data will likely soothe nerves ahead of tomorrow’s crucial Employment Situation report for November. Non-farm payrolls rose 214,000 in October, easing somewhat after September’s bumper addition of 256,000. The consensus estimate is for payrolls to have grown by 230,000 in November, with the unemployment rate holding steady at 5.8%. The Employment Situation for November is released at 08.30 ET on Friday.
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