European
Central Bank president Mario Draghi dovish tone on the euro zone surprised
markets yesterday, causing the euro to decline against all but two of its 16
major peers.

Despite
suggesting that the euro zone could return to growth later this year, investors
took their cue to sell the euro following Draghi’s comments that the recent
strength in the currency puts a downside risk to inflation as well recovery
prospects for the region. The ECB also left the interest rate unchanged.

European
Central Bank president Mario Draghi dovish tone on the euro zone surprised
markets yesterday, causing the euro to decline against all but two of its 16
major peers.

Despite
suggesting that the euro zone could return to growth later this year, investors
took their cue to sell the euro following Draghi’s comments that the recent
strength in the currency puts a downside risk to inflation as well recovery
prospects for the region. The ECB also left the interest rate unchanged.

Earlier
on in the day, incoming Bank of England governor surprised markets by stating
that the UK’s current monetary policy may be enough to support the economy,
damping speculation that he would expand stimulus immediately upon his tenure. The
BoE also left the interest rate at 0.5% and kept the asset purchasing program
at £375bln.

Economic
data yesterday from the UK showed that industrial and manufacturing production
and total trade balance beat market expectations and the NIESR GDP estimate for
January showed that the UK had stopped contracting. However the impact of the
figures on sterling was fairly muted.

A
string of good figures came in from China last night with trade balance and inflation
figures coming in better than expected. The Reserve Bank of Australia cut their
growth and inflation forecasts last night citing potential further cuts in the
interest rate.

Yesterday’s
euro weakness could well be short lived, as better than expected trade balance
figures released from Germany and better than expected industrial figures from
Italy this morning seem to be providing support for the euro. Today’s focus
will be on the EU budget, where officials will be looking to reduce the budget
by €30bln to €960bln over the next seven years.

Key Announcements:

13.30pm
– USD – Trade Balance: Expected to reduce to -U$45.80bln.

13.30pm
– CAD – Net Change in Employment: Expected to reduce to 5000.