Focus on the ECB Policy Meeting
Today’s UK data revealed that public sector borrowing in the nation widened unexpectedly for December. However, Sterling has shown little reaction to today’s data as investor sentiment remained subdued after a dovish tone in the minutes of the latest BoE policy meeting released yesterday weighed on expectations of any near term interest rate rise in the UK. Meanwhile, the ECB is scheduled to hold its policy meeting later today, where the central bank is expected to unleash a quantitative easing programme in the Euro zone, the size and duration of which is keenly awaited.
Across the Atlantic, today’s weekly jobless claims survey will be eyed to gauge the nation’s labour market health.
Pound Sterling – UK Markets
The Pound lost ground against the majors in yesterday’s trading session after the minutes of the BoE’s most recent policy meeting revealed that two policymakers who had earlier dissented from the majority to vote for an immediate interest rate rise have now voted in support of an unchanged policy stance. The publication further revealed that BoE officials expressed concerns over a downside risk in Britain’s inflation becoming entrenched. These minutes have led market participants to delay their expectations of the timing of an interest rate rise in the UK. Meanwhile, Sterling investors showed little reaction to yesterday’s upbeat UK labour market report which showed that unemployment for the three months ended November dropped to a multi-year low. The report further showed that domestic wage growth largely outpaced the inflation rate, strengthening prospects that the downside momentum in Britain’s consumer price growth might be short-lived.
Data just out showed that UK’s public sector debt widened surprisingly for December. However, Sterling showed little reaction to today’s data with the main focus of traders on today’s ECB’s policy meeting.
US Dollar – US Markets
The greenback is trading on a weaker footing against the common currency this morning ahead of the ECB’s much awaited policy meeting today where the central bank is anticipated to introduce a sovereign bond purchase programme in the Euro zone. In the US, the only notable economic release today is the weekly jobless claims survey which is expected to show a drop in the number of initial jobless claimants for the previous week. With last week’s first time jobless claimants’ numbers showing an unexpected rise, a weaker reading in today’s survey is likely to stoke concerns about slowing growth in the nation’s labour market.
Yesterday, the greenback gained ground against the Pound after minutes of the BoE’s latest policy meeting revealed that all officials unexpectedly voted to keep interest rates unchanged in the UK. However, with little support from the mixed housing data released in the US, the greenback pared its gains later in the trading session. Data revealed that the number of housing starts increased more than expected, while the number of building permits declined surprisingly for December, raising concerns over the health of the US housing market.
Euro – European Markets
The Euro is trading on a weaker footing against the majors this morning as traders remain focused on the ECB’s much awaited policy meeting scheduled later today. The ECB is expected to announce quantitative easing in the Euro zone to avert a deflationary threat in the region, especially after December’s inflation update in the region showed that consumer prices declined for the first time since October 2009. Unconfirmed reports revealed that the ECB’s expected stimulus package today will focus on the purchase of sovereign bonds worth €50 billion a month. Market participants will also keenly eye the ECB Chief’s press conference later today to gain an insight into the size and duration of the QE programme, along with some details over the distribution of the bond buying programme across the European nations.
Later today, traders will keenly eye Euro zone’s flash consumer confidence reading which is expected to show an improvement for January. Going forward, tomorrow’s preliminary manufacturing and services PMI surveys across key European nations will be awaited to gauge the health of the private sector in the Euro bloc.
Other Currencies – Highlights
The Japanese Yen gained ground against the greenback yesterday. The Bank of Japan (BoJ) in its policy meeting held yesterday maintained its monetary stance and raised its economic growth outlook for 2015 and 2016 to 2% and 1.6%, respectively. However, the BoJ slashed its inflation forecast for 2016 to 1%, amid a fall in global crude oil prices. Separately, the central bank Chief, Haruhiko Kuroda, expressed confidence about Japan’s inflation reaching the central bank’s 2% target, amid anticipations of a rebound in oil prices. However, the Japanese Yen reversed its early session gains against the greenback in the latter half of the trading session.
Earlier today, the BoJ in its latest monthly report indicated that Japan’s economy has continued to recover moderately and impacts of the first sales tax hike are gradually fading. However, the Japanese Yen showed little reaction to today’s report as focus among investors remains centred on the ECB’s policy meeting scheduled later today.