Euro falls as ECB (over)delivers!

The euro has weakened notably against the dollar after the ECB went further than perhaps markets’ expected in addressing the recent sharp slowdown in the Euro area economy. The single currency fell to just under $1.12 overnight, its lowest level since about the middle of 2017, and has drifted down to around 85.5p against the UK pound. German bond yields have also fallen post the ECB, with 10-year yields around 7bps lower at just 0.05% and bringing their cumulative decline since early October last to more than 50bps

The ECB took a knife to its forecast for GDP growth this year, cutting it to 1.1% from 1.7% previously, but still sees growth picking up in 2020 although the projection for next year (1.6%) was lowered a touch. It sees inflation falling further to around 1% towards the end of this year (from 1.5% currently), before picking up again thereafter but still running shy of target over the forecast horizon which extends out to 2021.

In response to its updated forecasts for growth and inflation, the ECB says all its key interest rates will now remain at their present level at least through to the end of 2019, longer than previously signalled (with the market thinking it will now be well into 2020 before there’s a first hike). It also announced new loans for banks, which will be offered each quarter starting in September this year and running until March 2021 with a maturity of two years, to ensure that bank lending conditions remain favourable

Today sees the release of the February “payrolls” report in the US. The consensus expects employment to have increased by 180,000 last month, after an increase of 304k in January, with the unemployment rate expected to nudge down to 3.9% and annual earnings growth seen ticking up to 3.3%