Majors Stay Quiet Ahead of ECB Announcements
What’s been happening?
Pound Sterling – UK Markets
The pound sterling stayed relatively calm on Tuesday and couldn’t make a decisive move in either direction against its major rivals despite headlines suggesting that Tuesday’s Brexit talks failed to yield a positive outcome.
Reporting on the critical meeting between Britain’s Attorney General Cox, Brexit Secretary Barclay and the European Union’s Chief Brexit Negotiator Michel Barnier, Reuters said that no agreement was reached and added that talks were set to continue on Wednesday. Moreover, citing diplomats familiar with talks, Reuters stated that the EU was not expecting a breakthrough in Brexit talks before the weekend. In an interview with BBC Radio, British Business Minister Greg Clark said that the UK will have to make difficult decisions on tariffs if it were to leave the EU without a deal. “The work is continuing on developing and finalising those tariff schedules but they will be published once we knew that we were leaving without a deal on March 29,” Clark explained.
Later in the day, Bank of England rate-setter Michael Saunders said that the BoE’s policy response to Brexit was not going to be automatic. “Weaker impact of recent rate rises suggests the BoE may need to be more forceful when tightening or loosening policy in future,” Saunders further elaborated while delivering a speech at Imperial College in London.
US Dollar – US Markets
The US Dollar Index snapped its 5-day winning streak on Wednesday but didn’t pull away from the 3-week high that it set on Tuesday. A more-than-1% drop seen in the 10-year T-bond yield weighed on the greenback and the uninspiring macroeconomic data releases from the U.S. made it difficult for the currency to gain traction.
The ADP reported that employment in the private sector increased by 183,000 in February to fall short of the market expectation of 189,000. On a positive note, January’s reading got revised up to 300,000 from 213,000. Commenting on the data, “The economy has throttled back and so too has job growth. The job slowdown is clearest in the retail and travel industries, and at smaller companies. Job gains are still strong, but they have likely seen their high watermark for this expansion,” explained Mark Zandi, chief economist of Moody’s Analytics. Other data from the U.S. revealed that the trade deficit widened to $59.8 billion in December from $50.3 billion in November with exports falling by $3.9 billion and imports rising by $5.5 billion.
Euro – European Markets
The shared currency closed the day virtually unchanged against both the British pound and the dollar on Wednesday as investors moved to the sidelines ahead of Thursday’s critical ECB meeting. Citing sources familiar with the matter, Bloomberg claimed that the ECB will cut its growth forecast for 2019 and inflation projections through 2021 to warrant new LTROs on Thursday. According to the sources, the bank is said to hold discussions on the design of the new targeted loans and debate the maturity and the interest rate on those loans.
What’s coming up?
UK: Halifax House Prices will be the only data releases from the UK on Thursday. Additionally, Bank of England MPC member Silvana Tenreyro is scheduled to deliver a speech.
US: Weekly jobless claims, nonfarm productivity, unit labour costs, and challenger job just data will be published in the U.S.
EU: After the Eurostat releases the Q4 GDP growth figures, which is expected to stay unchanged at 1.2%, and the employment data, the European Central Bank will announce its interest rate decision and publish the monetary policy statement. At 13:30 GMT ECB President Draghi will deliver his remarks on the policy and respond to questions from the press.