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Pound at Risk, Euro May Rise on ECB and BOE Rate Decisions

Pound at Risk, Euro May Rise on ECB and BOE Rate Decisions

Ilya Spivak, Head Strategist, APAC

The British Pound appears vulnerable while the Euro may rise after the BOE and ECB deliver their monetary policy announcements.

Talking Points

  • British Pound at Risk as Bank of England Introduces Forward Guidance
  • Euro May Rise if ECB Opts Not to Expand Rhetoric on Interest Rate Path

Monetary policy announcements from the European Central Bank (ECB) and the Bank of England (BOE) headline the economic calendar in European trading hours. Both central banks hinted at a move toward “forward guidance” as their policy strategy at last month’s meetings, but the BOE is likely to take a more formal approach than the ECB.

The significance of today’s BOE meeting was spelled out in no uncertain terms in July’s policy statement: “[The] Chancellor had requested that the [MPC] provide an assessment, alongside its August Inflation Report, of the case for adopting some form of forward guidance, including the possible use of intermediate thresholds. This analysis would have an important bearing on the Committee’s policy discussions in August.

With that in mind, the markets will be on the lookout for the adoption of defined language signaling how long the central bank plans maintain an accommodative policy posture, which may be expressed in terms of time and/or specific economic data outcomes (similar to the path taken by the Fed). Such an outcome is likely to be interpreted as a broadly dovish shift in the BOE’s position, leading the British Pound lower.

Turning to the ECB, a loose kind of forward guidance was introduced at July’s meeting, with central bank President Mario Draghi saying interest rates will “remain at present or lower levels for an extended period of time.” Eurozone economic news-flow has continued to improve relative to expectations since the ECB’s last sit-down, hinting the central bank may not see the impetus to push policy further to the accommodative side of the spectrum at this stage. The Euro is still tracking policy expectations, so a status-quo outcome may prove near-term supportive for the single currency.

New to FX? Watch this Video. For live market updates, visit the Real Time News Feed

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

23:30

AUD

AiG Performance of Manufacturing Index (JUL)

42.0

-

49.6

0:00

AUD

RPData/Rismark House Px (MoM) (JUL)

1.6%

-

1.9%

1:00

CNY

Manufacturing PMI (JUL)

50.3

49.8

50.1

1:00

AUD

HIA New Home Sales (MoM) (JUN)

3.4%

-

1.6%

1:30

AUD

Import Price Index (QoQ) (2Q)

-0.3%

2.0%

0.0%

1:30

AUD

Export Price Index (QoQ) (2Q)

-0.3%

0.3%

2.8%

1:45

CNY

HSBC/Markit Manufacturing PMI (JUL)

47.7

47.7

48.2

5:00

JPY

Vehicle Sales (YoY) (JUL)

-13.5%

-

-15.8%

6:30

AUD

RBA Commodity Index (JUL)

89.6

-

89.1

6:30

AUD

RBA Commodity Index (YoY) (JUL)

-11.8%

-

-10.4%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:45

EUR

Italian PMI Manufacturing (JUL)

49.7

49.1

Low

7:50

EUR

French PMI Manufacturing (JUL F)

49.8

49.8

Low

7:55

EUR

German PMI Manufacturing (JUL F)

50.3

50.3

Medium

8:00

EUR

Euro-Zone PMI Manufacturing (JUL F)

50.1

50.1

Medium

8:30

GBP

PMI Manufacturing (JUL)

52.8

52.5

Medium

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 Holds Press Conference

-

-

High

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.3151

1.3361

GBPUSD

1.5068

1.5266

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

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

To be added to Ilya's e-mail distribution list, please CLICK HERE

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

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