The euro ignored the decision of the European Central Bank to keep deposit rates at -0.5% and refinancing rates unchanged at 0.0%. The ECB expects key rates to remain at its current or perhaps, lower levels for quite a long time. As for bond redemptions, no changes were made with the purchase plans for 20 billion euros per month. Purchases are expected to last as long as necessary.
The euro did not react to the ECB president's speech during press conference. The new ECB president, Christine Lagarde, said that core inflation is restrained and economic growth is weak, nevertheless, signs of stabilization of growth and acceleration of inflation is present. All the ECB needs now, after taking action in the early autumn, is to closely monitor inflation and the impact of stimulus measures. Lagarde said that if necessary, she is ready to adjust all instruments, hinting at the possibility of lowering interest rates in the future. Among the risks, the ECB President attributed the slowdown in the Eurozone which is directly related to weak trade, uncertainty in the world and increased protectionism.
When asked what policy she will adhere to during her reign, Lagarde said that she will have her own style. The revision of the current monetary policy program will begin in January next year and will only be completed by the end of it. Lagarde noted that the policy review will go far beyond the usual topics but did not reveal any other details.
Economists at the European Central Bank has revised down their forecasts for Eurozone GDP growth. They now expect the Eurozone GDP to increase by 1.1% in 2020, and 1.4% in 2021. By 2022, it should have increased by 1.4%.
On the second half of the day, data released on the US economy was ignored by the market. According to the report of the US Department of Labor, the producer price index in November of this year remained unchanged compared to October. Economists had expected the indicator to rise by 0.2%. As for core inflation, which does not take into account food and energy prices, there was a decrease of 0.2% compared to the previous month. The index rose only by 1.1% compared to November 2018. The report once again confirms the weakness of inflation in the US, and despite the fact that growth forecasts are much better than in other countries, the current situation poses some problems for the Federal Reserve.
As for the weekly data on the US labor market, the number of Americans who first applied for unemployment benefits rose last week. According to the U.S. Department of Labor, the number of initial applicants for unemployment benefits for the week of December 1 to December 7 rose from 49,000 to 252,000. Economists had expected the number of applications to be 212,000.
Yesterday, the US president made a statement that the US and China are very close to a big trade agreement. But, despite the fact that such statements were made earlier, there was news that US negotiators proposed to lower existing duties on goods from China by 50%, which will take effect on December 17. At the same time, the administration said that the US will re-impose the original duties if China does not fulfill its obligations.
As for the technical picture of the EUR/USD pair, an increase continued after the news from the UK. At the moment, the problem lies at the level of 1.1200, with which a breakthrough would provide the market with new buyers and update the already local highs in the areas of 1.1230 and 1.1270. If the pressure on risky assets return, which may happen after a good report on retail sales in the US, the pace of economic growth will be supported. It is best to consider new purchases of the trading instrument after the update of the lower border of the channel 1.1115, or from the minimum of 1.1040.
GBP/USD
The victory of the Conservative party of Great Britain in the elections and the probability of forming a majority led to a sharp increase of the British pound in the area of the 35th figure. If a formation of a majority in parliament is confirmed today, the demand for the British pound will only strengthen, which will lead to an update of the highs of 1.3570 and 1.3650. If the other UK parties do not allow Boris Johnson to gain an advantage, the pound may possibly decline, since the situation with Brexit will just be the same, where any actions of the Prime Minister will need to be coordinated and carried through approval of the parliament. In the case of a decline, GBP/USD may lead to an update of large support levels around 1.3380 and 1.3270.
