BoE and ECB Policy Meetings

The two European central bank meetings scheduled today could have not been more dissimilar in terms of their likely outcomes. While the BoE is widely expected to maintain status quo with regards to its policy stance despite improving economy and the booming housing market, the ECB Chief could possibly outline his plans for the future, largely in terms of measures that the central bank might adopt if deflationary pressures hurt the region’s recovery. Across the Atlantic, harsh weather conditions continue to play havoc with the nation’s economic recovery and the Fed acknowledged the same in its latest Beige Book report. Against this backdrop, tomorrow’s non-farm payrolls numbers are also expected to remain skewed due to weather related concerns and may not present an accurate picture of the nation’s labour market.

Pound Sterling – UK Markets

With little on the domestic macro front today, Sterling investors are looking forward to the BoE monetary policy meeting, even though expectations of any modification in the central bank’s stance are minimal. The BoE Governor, Mark Carney, last month indicated a shift in the central bank’s forward guidance stating that policymakers will look at the overall domestic economic landscape and not just unemployment and inflation numbers before deciding on hiking interest rates in future. Against this backdrop and despite the largely positive UK economic reports of late, even a hint of a change in policy stance will surprise markets and sway trading sentiment for the Pound against the majors in the session ahead. Sterling has held on to its yesterday’s gains and is trading in a tight range against the majors this morning. The Pound showed little movement against the US Dollar following the release of the domestic services PMI report but strengthened later in the day tracking downbeat US economic data. Britain’s dominant service sector continued to expand at a healthy pace for February, with increased hiring by companies.

US Dollar – US Markets

The US Dollar was volatile against the common currency yesterday despite the release of downbeat domestic economic data as traders remained watchful of the ECB’s monetary policy meeting later today. The ADP employment report released yesterday showed that private sector jobs in the US rose at a slower than expected pace for February, while January’s numbers were also revised down sharply. Likewise, the ISM non-manufacturing PMI fell sharply to the lowest since February 2010. The unusually cold weather has hampered economic growth in the nation and similar concerns were highlighted in the Fed’s latest Beige Book report. However, the report indicated that the weather induced economic slowdown was temporary and that the economy will return to growth soon. Meanwhile, the greenback is trading in a tight range against the majors this morning. Against the backdrop of yesterday’s dismal ADP employment numbers, today’s initial jobless claims report will be closely watched by investors ahead of the crucial non-farm payrolls print tomorrow. Additionally, speeches by FOMC policymakers will also be on investors’ radar in the session ahead.

Euro – European Markets

The better than expected European services PMI numbers failed to lift the common currency against the majors yesterday as markets remained jittery ahead of the ECB monetary policy meeting today. The upbeat retail sales and the in line GDP numbers also failed to build a positive bias in favour of the single currency. The January Euro zone retail sales print surpassed market expectations, while services PMIs across major Euro zone economies also improved. However, during the latter half of yesterday’s trading session, the weather affected weak US domestic economic data somewhat lifted investors’ sentiment towards the common currency. Meanwhile, the Euro is range bound against its major peers in today’s trading session. With the ECB President, Mario Draghi, indicating that the policy meeting will be crucial, expectations of the ECB President hinting at the possibility of adopting loose monetary policy measures in the future have strengthened in recent days. While the ECB is unlikely to push interest rates further down, it may loosen lending conditions to combat the consistently low inflation. Additionally, investors will also follow some important US macro releases today for further direction.

Other Currencies – Highlights

The Canadian Dollar strengthened against the US Dollar yesterday following the release of disappointing US economic reports. Meanwhile, the Bank of Canada kept its benchmark interest rate unchanged at 1% in its monetary policy meeting held yesterday. The BoC has maintained the ultra-low interest rate since September 2010 and has refrained from altering its policy stance in order to support the economy. It is widely believed that the central bank is unlikely to raise interest rates in the near future, despite the economy performing slightly above its expectations. Meanwhile, investors in the Canadian Dollar will closely follow today’s domestic housing market and manufacturing PMI reports for further direction to risk appetite. Additionally, news flows emanating from both sides of the Atlantic, particularly the central bank meetings in Europe and the US labour market report, are likely to influence trading sentiment in the Canadian Dollar going forward.