November 7 2013

In the trading room today: EUR and GBP Outlook Following the ECB & BOE Decisions. In the aftermath of the European Central Bank and the Bank of England monetary policy decisions, we examine the reaction of the market to the announcement of a new record low benchmark rate in the euro-area and explore the outlook for the EUR and the GBP, we analyze the bearish breakout in the EUR/USD currency pair, we take a look at the drop in the GBP/USD pair, we note the strengthening of the USD vs JPY, we highlight the market’s reaction to the European Central Bank and the Bank of England interest rate announcements, the U.S. GDP and Jobless Claims, we discuss new forecasts from Royal Bank of Scotland and Westpac Banking Corp., and prepare for the trading session ahead.


November 7, 2013 ( – The European Central Bank surprised some market participants today by its decision to reduce the benchmark rate to a new record low 0.25 percent from 0.5 percent. The central bank cited the recent significant drop in inflationary pressures and the threat of deflation as some of the main reasons for the decision to ease monetary policy further.

The ECB President Mario Draghi said at a press conference in Frankfurt today that there may be a “prolonged period of low inflation in the euro-area”. Mr. Draghi also pledged to keep borrowing costs low for an “extended period” as the euro-zone should “benefit from a gradual strengthening of demand for exports.

The euro fell as low as $1.3296 following the announcement, its lowest level since mid-September. The signle currency also dropped against the pound and the yen.

Earlier in the trading session, the Bank of England stayed the course and kept rates at their current level of 0.5 percent. The central bank also maintained the size of its asset purchase program.

In the U.S., better than expected GDP estimate for the third quarter of the year showed the economy growing at a faster pace. The U.S. GDP expanded by 2.8% q/a in Q3 from 2.5% q/a in the second quarter, beating the estimates for a decline to 2% q/a.

The U.S. dollar is taking advantage of the positive surprise in the main measure of economic activity and growth in the world’s largest economy. The greenback is trading on a stronger footing against its major counterparts in today’s session, keeping the euro below $1.34, pushing the GBP back toward $1.60 and breaking above 99.00 versus the yen.