Rate decision day:
attentions turn to future strategies

Today the ECB and the Bank of England will both announce
their interest rate decisions. Though neither central bank is expected to cut
the rates, investors will pay close attention to what may be intimated in the
subsequent press conferences.

Rate decision day:
attentions turn to future strategies

Today the ECB and the Bank of England will both announce
their interest rate decisions. Though neither central bank is expected to cut
the rates, investors will pay close attention to what may be intimated in the
subsequent press conferences.

As both regions struggle economically, the euro zone in
recession and the UK threatened by one, the topic of quantitative easing is
likely to be high on the agenda. With the UK’s Funding for Lending Scheme
currently in operation, officials may wait to see its effect on the loosening
of monetary conditions before turning to further QE.

In Europe the need for either a rate cut, or further bond
purchases, may have been reduced as reports showed that confidence was creeping
up. Though confidence takes time to trickle down to tangible economic
improvement, ECB officials may be wary of making unnecessary cuts, threatening
inflation when for the short term at least, the situation does not require
them.

Should both central banks allude to future monetary easing
in their press conferences, the euro and sterling could have different
reactions. Future easing in the UK would likely mean a selling off of pounds as
the money supply gets diluted, whilst although the same scenario, we have seen
that anything which promotes the euro’s economic improvement can cause strength
in the single currency, giving the two converse trajectories for the day.

With the rate decisions taking precedent, across the pond
the US announce the unemployment figure, which is expected to marginally drop.
Unless the figure is drastically different to analyst expectations, focus for
the day will be looking to Mario Draghi and Mervyn King for their
announcements.

 

Today’s Key
Announcements:

• 07.45am – EUR – French Industrial Production m/m: large
  increase to 0.5%
• 12.00pm – GBP – Asset Purchase Facility: to remain at 375b
• 12.00pm – GBP – Official Bank Rate: expected to remain at
  0.5%
• Tentative – GBP – MPC Rate Statement
• 12.45pm – EUR – Minimum Bid Rate: expected to remain at
  0.75%
• 13.30pm – EUR – ECB Press Conference
• 13.30pm – USD – Unemployment Claims: expected to drop to
  361k