And for the ECB’s Next Trick?

Traders are waiting on the sidelines in anticipation of the ECB meeting today, wherein the central bank is expected to outline further tactics to deal with the region’s debt crisis. Market rumours have suggested that the ECB would devise plans to buy an unlimited amount of bonds, as well as waive seniority status among creditors. In contrast, the BoE’s policy meeting is likely to receive subdued market attention, as the Governor’s recent comments and relatively brighter PMI readings have considerably softened calls for an accommodative monetary stance. Across the Atlantic, the Fed’s policymakers are expected to pay attention to jobless claims and ISM services sector data due later today.

Pound Sterling – UK Markets

The Pound is languishing near yesterday’s lows against the Euro this morning, as expectation surrounding the ECB’s monetary policy meeting later today has revived risk appetite among market participants. However, burgeoning risk sentiment has aided the Pound against the US Dollar. The BoE, at its monetary policy meeting, is expected to continue with its wait and watch stance in order to gauge the impact of the latest bout of liquidity measures. Further strengthening calls for status quo at the meeting are the latest set of PMI data, which have revealed signs that the UK economy might be emerging out of a recession. Meanwhile, today’s meeting will see Ian McCafferty replacing Adam Posen in the MPC. His upbeat comments earlier about the UK economy make it unlikely that he would demonstrate the same willingness for ultra-loose policy that his predecessor pursued. Apart from the monetary policy meetings in Europe, markets are also expected to pay attention to Prime Minister David Cameron's plans to revive economic growth.

US Dollar – US Markets

Growing optimism that the ECB President, Mario Draghi, would unleash an ‘unlimited’ bond buying programme has continued to put pressure on the US Dollar against the majors in today’s trading session. However, with much market expectation already priced in, any deviation on this front could lead to a shift in risk sentiment. Additionally, key economic releases from the US during the course of today’s trading session are also expected to have an influence on the greenback. ADP’s private payroll data is expected to lay the foundation for tomorrow’s non-farm payroll figures. Moreover, weekly jobless claims data is also expected to garner some interest, with the Fed’s recent focus on the US labour market. With manufacturing data offering little to cheer, today’s ISM services sector data is likely to offer a broader picture of economic performance to the Fed’s policymakers ahead of their monetary policy meeting next week. Any negative surprises on the macro front today, especially the ADP report, would strengthen hopes of QE3 and might weigh on the US Dollar against the majors. The US macro releases and comments from the ECB are likely to prove vital in deciding the direction of currency markets today.

Euro – European Markets

Today’s ECB meeting is expected to provide details about the much awaited plan of the central bank to intervene in peripheral bond markets, leading the Euro to convincingly hang above the 1.26 mark against the greenback in today’s session. The ECB is expected to unleash an “unlimited” bond purchase program and forego seniority status among creditors. However, markets seem to be divided on the prospects of an interest rate cut in today’s monetary policy meeting. Meanwhile, the Spanish Prime Minister, Mariano Rajoy and the German Chancellor, Angela Merkel’s meeting later today will be keenly eyed amid growing fears that the Spanish economy is moving closer to seeking assistance from its European counterparts. On the macro front the situation appears to be poor, with French unemployment spiking to 10.2% while data due later today is expected to confirm a contraction in the Eurozone GDP for the second quarter. In today’s trading session, market focus is expected to revolve around the outcome of the ECB’s meeting, given its long lasting implications in tackling the crisis.

Other Currencies – Highlights

The Aussie Dollar has climbed against its major peers in today’s trading session after data revealed that the unemployment rate in Australia unexpectedly declined to 5.1% for August from 5.2% posted for the previous month. The positive jobs data seems to have provided relief to market participants following yesterday’s weak Australian GDP and services data. Additionally, high yield currencies benefitted from optimism that the ECB would unveil fresh set of measures to tackle the region’s debt crisis. On the macro front, the domestic trade and construction data are on tap for tomorrow but developments in the Eurozone are expected to dominate proceedings and could influence the Aussie Dollar. Market participants are expected to prepare themselves for tomorrow’s US non-farm payrolls data which is likely to lay finishing touches to the Fed’s monetary policy decision scheduled for next week.