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The pound surged higher when the U.K.’s latest retail sales report surprised to the upside. The pound did eventually cede ground to the Greenback, though. Still, second place ain’t too shabby. The Aussie and Kiwi were catching up to the pound, though, likely because of the risk-on vibes.

The euro, meanwhile, was mostly stronger ahead of the ECB statement, but was gutted when the ECB finally announced an end to its QE program while also signaling that rates ain’t gonna be budging for a while.

  • German final HICP m/m: no change from 0.6% as expected
  • French final HICP m/m: 0.5% vs. no change from 0.4% expected
  • U.K. retail sales m/m: 1.3% vs. 0.5% expected vs. 1.8% previous
  • U.K. core retail sale m/m: 1.3% vs. 0.3% expected vs. 1.4% previous
  • ECB announced no changes to current monetary policy
  • ECB maintained refinancing rate at 0.00%
  • Marginal lending rate maintained at at 0.25%
  • Likewise, deposit rate maintained at -0.40%
  • QE extension until September 2018 at €30B per month was reaffirmed
  • After September, QE will be tapered to €15B per month until December
  • After December, “net purchases will then end
  • ECB presser coming up; watch it live here

Major Events/Reports:

ECB monetary policy decision

As expected, the ECB announced during its official press statement that no changes were made to the current monetary policy.

The refinancing rate is therefore still at 0.00%. The marginal lending rate, meanwhile, is unchanged at 0.25%. As for the deposit rate, that’s still at -0.40%.

The ECB also reaffirmed that its QE program will continue at a monthly pace of €30 billion until the end of September 2018.

HOWEVER, the ECB also announced that (emphasis mine):

“The Governing Council anticipates that, after September 2018, subject to incoming data confirming the Governing Council’s medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to €15 billion until the end of December 2018 and that net purchases will then end.”

With regard to interest rates, the ECB gave the following (disappointing) forward guidance:

“The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path.”

This is rather disappointing since the market has already priced in a June rate hike, market analysts say. And since the ECB stated that it wants to keep key rates steady “through the summer of 2019,” then that means that the earliest that the ECB may consider a potential rate hike would be sometime in October 2019.

Anyhow, market players are now sitting tight for what ECB Overlord Draghi has to say in the ECB presser. And if you didn’t know, you can watch the ECB presser live by clicking here, if you’re interested.

Strong U.K. retail sales

The Office for National Statistics (ONS) released the U.K.’s May retail sales report earlier and it was rather impressive.

To be more specific, the report revealed that headline retail sales volume in the U.K. surged by 1.3% month-on-month, which is almost three times stronger than the consensus reading of +0.5%.

Also, the previous reading was upgraded from +1.6% to 1.8%, so retail sales will likely have a bigger contribution to GDP growth in Q2.

A closer look at the details show that most store types, including automotive fuel stores, printed weaker increases in sales volume.

However the 4.5% surge in sales from non-store retailing helped to offset the weaker sales from other store types, so the core reading came in also at 1.3%, which is only a tick slower compared to last month’s 1.4% and is better-than-expected to boot (+0.3% expected).

Year-on-year, headline retail sales spiked by 3.9%, which is the strongest reading in 13 months and is stronger than the expected 2.4% annual increase.

The annual core reading was even more impressive since it came in at +4.4%, which is a 17-month high and significantly better than the expectd 2.5% increase.

Needless to say, the growth in retail sales volume was broad-based, with all store types reporting higher sales, with the exception of automotive fuel stores.

Sentiment switches to risk-on

The major European equity indices started the trading day on a weak footing, basically because of risk sentiment spillover from the earlier Asian session, since market analysts were citing poor Chinese data and concern over the trade spat between the U.S. and China as supposedly souring overall risk sentiment.

That changed when the ECB announced its monetary policy statement, however, since the major European equity indices quickly erased their gains and then shot higher into positive territory, very likely because the market was pleased to hear that the ECB isn’t planning to hike rates anytime soon.

  • The pan-European FTSEurofirst 300 was up by 0.24% to 1,521.05
  • Germany’s DAX was up by 0.35% to 12,936.13
  • The blue-chip Euro Stoxx 50 was up by 0.30% to 3,493.05

U.S. equity futures were also in the red earlier but were jolted higher in the wake of the ECB statement.

  • S&P 500 futures were up by 0.22% to 2,785.00
  • Nasdaq futures were up by 0.25% to 7,248.75

Major Market Mover(s):

EUR

The euro had a noticeable tilt to the upside in the roundup to the ECB statement.

And when the ECB did finally announce its monetary policy statement, the euro tried to jump higher because of ECB announced an end to its QE program.

However, bears quickly jumped out of the woods and mauled the bulls, likely because ending the ECB’s QE program was widely anticipated. Basically a “buy the rumor, sell the news” kind of scenario played out.

However, it’s also very likely that fresh bears were enticed to attack because of the ECB’s disappointing forward guidance on interest rates since market analysts were pointing out that traders have already priced in a rate hike by June 2019.

EUR/USD was down by 74 pips (-0.63%) to 1.1739, EUR/GBP was down by 46 pips (-0.52%) to 0.8768, EUR/JPY was down by 65 pips (-0.50%) to 129.25

USD

The Greenback was mixed for most of the session but it suddenly became the top-performing currency of the session when the euro plunged because of the ECB statement.

There were no direct catalysts for the Greenback itself, so it’s likely that the Greenback was feeding off the euro’s weakness as monetary policy divergence and interest rate differentials came into play, given that the Fed hiked yesterday (and signaled more hikes), while the ECB said that interest rates ain’t moving anytime soon.

USD/JPY was up by 9 pips (+0.08%) to 110.11, USD/CHF was up by 34 pips (+0.35%) to 0.9870, USD/CAD was up by 5 pips (+0.04%) to 1.2978

GBP

The pound dominated its peers for most of the session, thanks to the U.K.’s stronger-than-expected retail sales report.

The pound did eventually lose out to the Greenback, though. Still, second place ain’t too bad. The pound may soon lose its ranking to the Kiwi and Aussie, though, since the two are closing the gap against the pound, likely because of the risk-on vibes.

GBP/USD was down by 5 pips (-0.04%) to 1.3387 but reached an intraday high of 1.3446 earlier, GBP/CHF was up by 30 pips (+0.23%) to 1.3213, GBP/JPY was up by 14 pips (+0.10%) to 147.49

Watch Out For:

  • 12:30 pm GMT: ECB presser; watch it live here
  • 12:30 pm GMT: Headline (0.4% expected vs. 0.3% previous) and core (0.5% expected vs. 0.3% previous) readings for U.S. retail sales
  • 12:30 pm GMT: U.S. initial jobless claims (223K expected vs. 222K previous)
  • 12:30 pm GMT: Canada’s NHPI (0.0% expected, same as previous)
  • 2:00 pm GMT: U.S. business inventories (0.3% expected, 0.0% previous)