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Euro, British Pound May Rise on ECB and BOE Rate Decisions

Euro, British Pound May Rise on ECB and BOE Rate Decisions

2013-07-04 09:53:00
Ilya Spivak, Head Strategist, APAC
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The Euro and British Pound may rise as the European Central Bank and the Bank of England opt to maintain the status-quo setting of monetary policy.

Talking Points

  • Euro May Rise as ECB Policy Remains on Hold Despite Portugal Turmoil
  • Pound to Rise if Carney-Led BOE Opts to for Status-Quo Policy Setting

Monetary policy announcements from the European Central Bank (ECB) and the Bank of England (BOE) are in focus. The BOE meeting is notable in that it will mark the first sit-down with new Governor Mark Carney at the helm. UK economic news-flow has impressively improved relative to expectations since late May, hinting that even if Mr Carney is in favor of expanding stimulus measures, he is unlikely to get the votes to do so on the rate-setting MPC committee.

With that in mind, the emergence of a policy statement might be interesting. The BOE does not typically offer accompanying commentary with “on-hold” rate decisions, but the entry of Carney may see this change. Needless to say the markets will be keen to scour any such statement for forward policy guidance if it does emerge. Otherwise, a status-quo result may offer a lift to the British Pound as any further accommodation is pushed back by at least a month.

Turning to the ECB, policy innovation beyond familiar rhetorical overtures about downside risks to growth and pledges to stay accommodative for a long time is unlikely. The trend in Eurozone PMIs suggests that while recession continues to plague the region, the situation has somewhat stabilized in terms of the pace of contraction. That suggests the central bank is unlikely to see the urgency in offering expanded support at this stage.

This shifts the spotlight to the press conference by ECB President Mario Draghi. On this front, recent political instability in Portugal is likely to feature heavily in the conversation. Yields on the country’s benchmark 10-year bonds have soared past the closely-monitored 7 percent threshold as a rift about the country’s austerity program threatens to splinter the government. However, the situation seems too shrouded in uncertainty for the central bank to go out on a limb with a specific policy response just yet.

On balance, overall financial conditions in the Euro area have been relatively stable (according to data compiled by Bloomberg) and the Euro has shown little sensitivity to the Portugal crisis thus far, opting to track the front-end yield spread instead. That puts policy expectations at the forefront, and with the US side of the equation quiet as markets there remain closed for the Independence Day holiday a decision to maintain ECB policy as-is seems likely to be supportive for the single currency.

Capitalize on Shifts in Market Mood with the DailyFX Speculative Sentiment Index

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

1:30

AUD

Building Approvals (MoM) (MAY)

-1.1%

-1.0%

9.5%

1:30

AUD

Building Approvals (YoY) (MAY)

-3.2%

-0.1%

28.8%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:00

GBP

Halifax House Price s.a. (MoM) (JUN)

0.6% (A)

0.5%

Low

7:00

GBP

Halifax House Price (3MoY) (JUN)

3.7% (A)

2.6%

Low

8:30

GBP

Lloyds Employment Confidence (JUN)

-33 (A)

-37

Low

11:00

GBP

Bank of England Rate Decision

0.50%

0.50%

High

11:00

GBP

BOE Asset Purchase Target

375B

375B

High

11:45

EUR

European Central Bank Rate Decision

0.50%

0.50%

High

12:30

EUR

ECB President Draghi Press Conference

-

-

High

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.2944

1.3053

GBPUSD

1.5174

1.5349

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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