Forex today: ECB more dovish than expected, dollar mixed on conflicting risk sentiments

• Forex today was relatively subdued and lacking a catalyst at traders built up to the ECB that came in line with expectations, albeit a little more dovish than anticipated, and then quickly moved on to prospects from the FOMC meeting next week. 

All aspects of the ECB’s policy were as expected, with nothing changed apart from a standout moment in the event when President Draghi in the press conference said downside risks were growing.  On the emerging risks to the outlook, he said they are “broadly balanced,” but are “moving to the downside.” 

• ECB's QE is dead, long live QE!

Policy rates were unchanged (refinancing rate 0.0%, deposit rate -0.4%) and the end of the ECB asset purchasing program was cemented. "Within the projections, the headline moves were mostly “in the market” but the lower path of core inflation and low GDP for 2021 (1.5%) provided the dovish slant," analysts at Westpac argued. Elsewhere, the greenback was steady but global risk sentiment seems to be gradually recovering which leaves the long safe haven trade in the US dollar fragile into the final trading days of the year.  High-beta FX was mostly higher and the commodity complex gets a relief from a softer dollar outlook. However, copper was hit and taken down from one-week highs on mixed sentiment surrounding Sino/US trade relations which leaves a cautiously optimistic approach to the antipodeans into year end. 

Currency action

Analysts at Westpac noted the movers of the overnight sessions in a summary of the price action:

• "EUR/USD fell from 1.1390 to 1.1330 in response to the slightly dovish narrative from the ECB, but later retraced to 1.1365.
• The Swiss central bank (SNB) remained firmly on hold, keeping its deposit rate at -0.75% and continuing to pledge currency intervention as necessary. The safe haven franc is clearly on the strong side of the past year’s ranges against the euro.
• GBP/USD ranged sideways between 1.2615 and 1.2685, following PM May’s survival of a no-confidence vote.
• USD/JPY rose from 113.40 to 113.70. AUD/USD probed up to 0.7245 in the London morning but then retreated to 0.7225, barely changed on the day.
• NZD ranged between 0.6840 and 0.6880.
• AUD/NZD ranged sideways between 1.0520 and 1.0550."

Key notes from US session:

• Wall Street ends the day mixed on conflicting geopolitical sentiment