Data gives food for
thought for future ECB rate cuts

As the euro zone’s unemployment rose to the highest since
the single currency’s inception and coupled with both worse retail sales and
German factory order figures, the euro strengthened against the pound as
murmurs that an ECB rate cut was not likely for Thursday, whilst negative
sentiment towards the UK’s own progress weighed sterling down against almost
all of its peers.

Data gives food for
thought for future ECB rate cuts

As the euro zone’s unemployment rose to the highest since
the single currency’s inception and coupled with both worse retail sales and
German factory order figures, the euro strengthened against the pound as
murmurs that an ECB rate cut was not likely for Thursday, whilst negative
sentiment towards the UK’s own progress weighed sterling down against almost
all of its peers.

Questions must continue to be asked about the euro zone’s
direction, as Angela Merkel came under fire for the worrying trajectory of
Europe’s stalwart economy. German industrial production data released this
morning will offer further insight into the health of the economy, with a
drastic improvement from last month’s negative growth is expected.

Should the results return much worse than analysts’
prediction, pressure may mount on the ECB to give further consideration to a
rate cut. The consensus shows that a reduction in the borrowing rates are not
expected tomorrow, however speculation that one is in the offing could cause
movement. Normally a rate cut in a currency prompts weakness, however in recent
months the euro has proved inconsistent; any signs the economy could recover
may increase risk sentiment on the continent.

In the US news about the fiscal cliff has died down as Obama
rebalances the unpopular current congress. In the UK today we have trade
balance data that will either confirm the currently gloomy outlook on the
economy, however if a positive result comes out it would be a pleasant surprise
following yesterday’s weak pound.

 

Today’s Key
Announcements

• 09.30am – GBP – Trade Balance: expected at -9.1B
• 10.00am – EUR – Final GDP q/q (revised): expected to remain
  at -0.1%
• 11.00am – EUR – German Industrial Production m/m: expected
  to increase from -2.6% to 1.1%
• 18.00am – USD – 10y Bond Auction