The euro dropped sharply on the European Central Bank’s announcement that it will consider a tiered system for reserves, which raised the possibility of further rate cuts and a new round of QE. However, it rebounded sharply after Mario Draghi's press conference didn’t produce as dovish an outlook as many had anticipated.
Bloomberg reported that Draghi said the ECB had not considered an interest-rate cut today and that the risk of recession was pretty low causing the euro to reverse (see chart below).
Although there were no surprises from an ECB rate action today, all eyes turn to September once the new forecasts are out. Until then, odds will be clearer by the end of today's press conference. We now await to what extent will Draghi offer extra dovish signals and whether the euro will come up in the discussion.
Boris Johnson Goes on all in
Boris Johnson took his first actions as Prime Minister on Wednesday, saying he will take the UK out of the EU, “no ifs, ands or buts”. He named Raab as his foreign secretary, Gove as Chancellor of the Duchy (essentially the cabinet boss) and Javid as Chancellor of the Exchequer.
May tried to build a compromise cabinet but Johnson is surrounding himself with like-minded thinkers. It also highlights that his main priority is Brexit. The thinking may be that only the hardliners will be able to push through a compromise because Johnson has given them plum jobs and the opportunity to govern. At the same time, it may be hard for them to credibly vote for tweaks to the declaration on the new relationship while leaving the withdrawal agreement unchanged.
Ashraf tells me he sees the likelihood for a new UK General Election before year-end at 60%, especially if the Conservatives lose a seat in the upcoming by-election in Brecon and Radnorshire.
Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.
