European Central Bank keeps interest rates unchanged

European Government Bonds: Too Early For The ECB To Announce A Change In Guidance

European Government Bonds: Too Early For The ECB To Announce A Change In Guidance

Pound/dollar slipped to 1.4252 (+0.08%) during early European trading hours after breaking 1.4327 - a level it last saw before the Brexit referendum -, while euro/dollar erased earlier gains, falling back to 1.2400 (-0.05%).

As if on cue, Mario Draghi on Thursday demonstrated one effect of the weak-dollar philosophy espoused by Steven Mnuchin on Wednesday.

Following recent US Dollar weakness on the back of the White House's rumoured plans to ramp up protectionist trade policies, investors were shocked to hear that Mnuchin was welcoming the recent US Dollar losses.

But while the central bank chief's message was clear, his statement that the vaulting euro was "a source of uncertainty which requires monitoring" after a regular gathering of the ECB's policy-setting governing council failed to brake its rise.

Signs are that the countries concerned will have no problem surviving the end of euro zone largesse, which pilled over to them indirectly.

Germany's manufacturing PMI missed expectations with a 2.1 points drop to 61.2 points. Average wage growth excluding bonuses rose to 2.4% after investors had eyed a 2.3% reading, its joint fastest pace since December 2016.

It has indeed been a awful day for the dollar over the last 24 hours as it got beaten all across the board yesterday. The services PMI was projected to slip from 55.8 to 55.6 points. This will contribute to both favorable liquidity conditions and an appropriate monetary policy stance.

"Last week the dollar was under pressure on expectations towards the European Central Bank and Bank of Japan normalising monetary policy, but the bear trend has entered an entirely new phase after Mnuchin's comments", said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

Of course, the euro has been particularly strong against the dollar, the depreciation of which has played a major role in the move.

He continued: 'Longer term, the strength of the Dollar is a reflection of the strength of the USA economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency'.

Such comments matter because a weaker dollar can help US exporters by making their goods cheaper against foreign competition. It is likely Dollars will see further weakness before the end of the week if Friday's key US Gross Domestic Product (GDP) results fall short of expectations.

European government bonds were slightly lower from Wednesday's close.

Persistent US Dollar weakness is also likely to benefit Euro exchange rates, with concerns over the trade policies of the Trump administration looking set to persist for some time to come.

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