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The US dollar advances as the Euro weakens, after a more dovish than expected European Central Bank

By OFX

The US dollar increased 0.36 percent after the European Central Bank left the benchmark interest rate unchanged as expected. At its first meeting of 2019, the Governing Council of the European Central Bank (ECB) decided to leave the interest rates on the main refinancing operations, the marginal lending facility, and the deposit facility unchanged at 0.00, 0.25 and -0.40 percent, respectively. European economists and strategists think that investors already expect a dovish tone at today’s ECB meeting, suggesting a limited market impact.

The Eurozone has been stung by the trade tensions of recent months. Furthermore, an issue hurting Europe is the weakness in China. Europe is an open economy and the trade story has weakened it. This situation is pushing the US dollar higher, but it is more about the perception of weakness in the European economy than strength in the US economy.

This morning, the Loonie was hit by a strong US dollar, but also by a weaker Euro - an effect of a more dovish than usual press conference speech by Mario Draghi, European Central Bank. This situation is influencing other major currencies in addition to the US dollar, such as the Canadian dollar and Australian dollar. At the time of this writing, the USD/CAD pair rose 0.17 percent, touching an intraday high of 1.3375.

One of the main drivers of the Loonie, the crude oil WTI, is still trading sideways, with market participants taking profits after the recent bounce from 42 dollars a barrel in December to around 54 dollars on Monday this week. The U.S. oil prices are still under pressure as investors remain focused on global economic growth concerns, and how a slowdown might put a dent in demand for oil.

The EUR/USD pair fell 0.27 percent after the European Central Bank left the benchmark interest rate unchanged as expected. The EUR/USD has moved in a range of 80 pips in the last 9 hours, falling from 1.1387 to an intraday low of 1.1307, right after Mario Draghi started his talk. At its first meeting of 2019, the Governing Council of the European Central Bank (ECB) decided to leave the interest rates on the main re-financing operations, the marginal lending facility, and the deposit facility unchanged at 0.00, 0.25 and -0.40 percent, respectively.

Yesterday was another positive day for the British Pound, as markets continue to see a diminishing chance of the UK dropping out of the EU without a deal. The Sterling rallied on news that an amendment was scheduled to be tabled in parliament by Labour MP Yvette Cooper. Her aim is that if no deal is struck by the end of February, then Theresa May would be legally obliged to extend Article 50’s deadline until December 31st, thereby giving more time for an agreement to be found. Extra upward pressure was given to the Sterling later in the day as the Chairman of the pro-Brexit European Research Group, Jacob Rees-Mogg, stated that Theresa May’s proposed withdrawal agreement could be “reformed”, and that he believed things were moving their way with regards to the much-opposed Irish border “backstop.” GBP/USD cracked 1.3000 then 1.3094 and came very close to breaking the 1.3100 handle during the Asian session, before some profit taking took place and it started to retrace.

There was some good news domestically yesterday. The level of unemployment unexpectedly dropped back to 5 percent when a hold at 5.1 percent was predicted. The AUD/USD jumped 25 pips to 0.7165, however, the rally was short-lived, and the Aussie slipped back towards the 0.7100 handle. High levels of household debt are compounding ongoing trade concerns between the US and China, which are creating a headwind for the Aussie dollar. Many predict a new level in the high 0.60s will soon be commonplace. The AUD/USD trades at 0.7114 this morning.

After popping higher on Tuesday night’s higher than expected CPI print, the Kiwi has fallen away mirroring moves in the other commodity currencies. There is little domestic data of note to concern NZD market participants, so expect the Brexit, US/China trade, and the shutdown to be the primary movers of the local dollar. The NZD/USD trades at 0.6788 this morning.