US Dollar Weakens Broadly After ECB’s Monetary Statement, NFP Eyed - 7.6.2013

Following ECB’s decision to hold the monetary policy unchanged as it was expected, the Euro rallied against the US dollar to cap at 1.3301, while the greenback was losing broadly against its major peers. ECB’s key interest rate remains at record low level at 0.5% with the deposit facility rate at 0.00%. The single currency was supported by Draghi’s comments that economic recovery likely to strengthen later in 2013 even though the 2013 GDP growth has been revised slightly downwards to decline by 0.6% but the 2014 growth has been revised upwards to increase by 1.1%. In addition the Bank of England also maintained its monetary policy the same which was largely expected by market participants, with interest rate at 0.5% and asset purchases size at £375B. The British pound gained much against the US dollar, breaching resistance initially at 1.5364 and advancing as high as 1.5682.

Against the Japanese Yen the US dollar continued its downtrend by breaking from above the support at 98.85 and reaching downside barrier at 95.55, while Asia shares were declining with NIKKEI 225 falling to new 2-month low at 12877.53. Uncertainty that FED may reduce asset purchases is feeding investors risk aversion inducing them to take profits on stocks, ahead of the Non-Farm Payrolls. Lastly, the Australian dollar bounced up after ECB’s decision to 0.9670 versus the greenback but then reversed falling as low as 0.9469 in the recent trading. Looking ahead, NFP figure is expected to be around the previous one at 167K with Unemployment Rate remaining unchanged at 7.5%, this data will reveal if there has been improvement in one of the key sectors of US economy and most likely to influence decision on asset purchases action by FED.