The headline event of the day bought no real surprises. The ECB held interest rates at 0.25%, which was largely expected. Also Mario Draghi had no change in his stance with regards to future monetary policy, stating that he expects inflation and the interest rate to stay low for an extended period – which was no change from previous rhetoric.
Off the back of all this, the euro strengthened. Why? Due to the low levels of inflation, markets were anticipating either an interest rate cut or for Draghi to change his stance on monetary policy possibly suggesting a rate cut could be on the cards. However, as Draghi did not mention any of this, the euro picked up strength.
However he did add that effective from March, the ECB will release new economic forecasts over a two year horizon – giving more guidance to the markets.
Data from the Department of Labour revealed that the number of people filing for jobless claims fell by 17,000; more than markets had been expecting. Whilst this new should have strengthened the US dollar, markets appeared to focus more on the latest trade balance figures, which came in worse showing that the trade deficit had widened more than expected to US$38.7bn. As a result lost ground against the pound.
No big news from the UK yesterday as the Bank of England unsurprisingly held interest rates at a record low of 0.5% and kept its quantitative easing program at £375bn. Market still seem to be nervous ahead of next week’s quarterly inflation report, with some even suggesting that Forward Guidance may be amended by adding another factor which would enable the BoE to increase interest rates.
Data from the UK is forecasted to suggest that production in industrial and manufacturing both dropped in December, which could cause the pound to finish the week lower against most of its counterparts.
The main event of the day will be non-farm payroll figures which is expected to show an extra 185,000 jobs were added in January; a bit improvement following Decembers surprisingly poor report. A strong report will vindicate the Fed’s decision to taper its quantitative easing program but could also give a good case the extent of how future tapering could occur, depending on how good the data is – as a result we would expect the US dollar to strengthen should this occur
9.30am – GBP – Industrial Production (Dec): Expected to drop to 2.3%.
9.30am – GBP – Manufacturing Production (Dec): Expected to drop to 2.3%.
9.30am – GBP – Trade Balance (Dec): The deficit is expected to widen to £3.1bn.
13.30pm – CAD – Unemployment Rate (Jan): Expected to drop to 7.1%.
13.30pm – USD – Non-farm Payrolls (Jan): Expected to increase to 185,000.
13.30pm – USD – Unemployment Rate (Jan): Expected to remain at 6.7%.
15.00pm – GBP – NIESR GDP Estimate (Jan): Previously at 0.7%.