Yahoo Finance Euro Sinks After ECB Says Rate Hike on Hold Until Summer of 2019
The U.S. Dollar surged against a basket of major currencies to nearly a new high for the year on Thursday, led mostly by a sharply lower Euro. The single-currency plunged 1.68 percent after the European Central Bank said it planned to keep interest rates at record lows into the summer of 2019. ECB policymakers also extended the central bank’s massive bond purchase program into December, but lowered the size of the transactions.
The Euro initially weakened after the central bank said it would extend the bond purchase program, but spiked lower shortly after the start of ECB President Mario Draghi’s press conference. Following the central bank’s policy meeting, Draghi said, “We didn’t discuss when to raise rates.”
That quote was a red flag for long Euro investors, catching many off-guard and obviously on the wrong side of the market. It also highlighted the divergence in monetary policies between the hawkish U.S. Federal Reserve and the dovish European Central Bank.
Euro Zone bond investors responded immediately to the dovish response by the ECB, cutting the chance of a 10 basis point rate hike by July 2019 from 80 percent before the meeting to just 30 percent by the close of the session. On the other hand, the Fed signaled on Wednesday that it would raise rates twice before the end of the year and as many as three times in 2019.
U.S. Economic News
The U.S. Commerce Department said on Thursday that retail sales increased more than expected in May. Retail Sales jumped 0.8 percent last month, the biggest advance since November 2017. Data for April was revised up to show sales rising 0.4 percent instead of the previously reported 0.2 percent gain. Investors were looking for an increase of 0.4 percent in May.
Economists attributed the rise to strong purchases of motor vehicles and a range of other goods despite a jump in gasoline prices. This is an indication of an acceleration in economic growth in the second quarter. This should help generate a strong GDP number.
Gold
Gold prices spiked to a month-high on Thursday after the European Central Bank (ECB) said it would hold interest rates at historically low levels until the summer of 2019. The precious metal rose despite a stronger U.S. Dollar which tends to lower demand for dollar-denominated assets like gold.
Additionally, there was some safe haven buying on Thursday in response to a threat by China to end trade talks if the U.S. continued to impose tariffs on the country. Weak economic data out of China also pushed investors into gold.
Crude Oil
U.S. West Texas Intermediate and international-benchmark Brent crude oil settled mixed on Thursday. The gain by the U.S. market and the loss by the internationally-favored brand helped tighten the spread between WTI and Brent.
Heading into next week’s June 22-23 OPEC meeting in Vienna, attendees are going to have to address rising U.S. output and uncertainty over the outlook for supply because of economic turmoil in Venezuela and the upcoming sanctions against Iran. However, given the recent limited gains, it looks as if investors have priced in the possibility OPEC and other major producers will agree to higher output.
This article was originally posted on FX Empire
