EUR/USD erases Draghi-inspired gains, slumps to 5-week lows below 1.13
The EUR/USD pair moved sideways a little below the 1.14 during the first half of the day and fluctuated sharply following the ECB's monetary policy announcements and President Draghi's remarks at the press conference. After slumping toward the 1.13 mark, the pair easily recovered all of its daily losses before coming back under heavy selling pressure in the NA session and slumping below the 1.13 mark for the first time since mid-December. As of writing, the pair was down 0.73% on the day at 1.1299.
As expected, the European Central Bank decided to keep the interest rates on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.40%, respectively. In the press conference, President Draghi noted that the incoming data have been weaker than expected and added that the headline inflation was likely to decrease in the coming months. However, Draghi further explained that they would continue to assess the economic situation until their meeting in March to suggest a wait-and-see approach.
Reviewing today's ECB event, "The cautious and dovish ECB bias today underlines the lack of domestic reasons for a meaningful EUR upside. We expect EUR/USD to rise persistently but only in response to structural USD weakness and for this to happen, we still need to wait a few more months," ING analysts said.
Meanwhile, today's data showed that the business activity in Germany's manufacturing sector contracted for the first time in more than four years and the Services and Manufacturing PMI readings for the euro area both came in below market expectations. Finally, according to the German newspaper Handelsblatt, Germany's minister of economy was expected to lower the 2019 growth forecast of Germany to 1% from 1.8% in the previous estimate to further weigh on the euro.
On the other hand, the IHS Markit reported that both the service and the manufacturing sector in the U.S. continued to grow at a healthy pace in January to help the US Dollar Index gain traction. Additionally, the U.S. Bureau of Labor Statistics announced its lowest weekly initial jobless claims in 50 years at 199K. At the moment, the US Dollar Index is looking to post its highest daily close of 2019 above 96.60.