The European Central Bank (ECB) announced an extension in the bond purchase programme until December 2017. From April 2017 to December 2017, the monthly purchase amount will be cut from EUR 80bn to EUR 60bn. Technical changes were made to the programme, including the ability to buy bonds which yield less than the deposit rates, currently set at -0.4%.
The euro briefly spiked higher as the news broke, before losing ground to trade weaker than pre-announcement levels, when traders realised this wasn’t a “tapering” measure. Draghi was also very keen to stress that there had been no discussion of tapering at the meeting. With no significant upward revision to growth estimates and economic risks ever present, the overall tone and rhetoric was dovish.
There was a lack of significant UK data releases yesterday, but the pound still experienced an increase in volatility surrounding the dollar, peaking at 1.2700 before trading below 1.2600. The latest UK trade data will released today, although overall confidence in the data is likely to be weak given previous big revisions. The inflation expectations data will also have an impact on Bank of England (BoE) policy, with any sharp increase in inflation increasing the possibility that the BoE will eventually have to raise interest rates to curb inflation.
The US jobless claims data printed in line with consensus suggesting that the labour market is still strong. The greenback rebounded sharply following the ECB announcements, dragging GBP/USD more than a cent lower from recent highs in the 1.2700 region. The markets continue to price in a near-100% probability that interest rates will be increased next week.