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Forex: Euro Falters On Growing Bets For ECB Rate Cut- 1.2650 In Sight

Forex: Euro Falters On Growing Bets For ECB Rate Cut- 1.2650 In Sight

2012-12-07 13:05:00
David Song, Strategist
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Talking Points

  • Euro: ECB Favors Rate Cut In 2013, Bundesbank Lowers Growth Forecast
  • British Pound: Rising U.K. Inflation Expectations To Spur Hawkish BoE

Euro: ECB Favors Rate Cut In 2013, Bundesbank Lowers Growth Forecast

The Euro slipped to a fresh weekly low of 1.2913 as a growing number of European Central Bank (ECB) officials showed a greater willingness to lower the benchmark interest rate further, and the pair should continue to give back the rebound from November (1.2659).

There are reports that the majority of the Governing Council would support a rate cut amid the deepening recession in the euro-area, and we may see the ECB continue to embark on its easing cycle in the following year as the economic downturn threatens price stability.

Indeed, the Bundesbank cut its growth forecast for Europe’s largest economy as Germany is now expected to expand a mere 0.4% in 2013, and we may see the euro-area face a protracted recession as the debt crisis continues to drag on the real economy. As the fundamental outlook for the region deteriorates, growing speculation for record-low borrowing costs should produce further declines in the exchange rate, and we may see the EURUSD make another run at the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as interest rate expectations falter.

British Pound: Rising U.K. Inflation Expectations To Spur Hawkish BoE

The British Pound extended the decline from the previous day as the larger-than-expected decline in manufacturing and industrial production dampened the outlook for growth, but we may see the Bank of England adopt a more hawkish tone for monetary policy amid the stickiness in price growth.

According a survey by the BoE, inflation expectations for the next 12-months increased an annualized 3.5% after expanding 3.2% in August, and we should see the central bank shift gears in 2013 as price growth is expected to hold above the 2% target over the next two years.

As a growing number of Monetary Policy Committee officials drop their dovish tone, the shift in the policy outlook instills a bullish outlook for the British Pound, and we may see the sterling consolidate ahead of the BoE Minutes due out on December 19 as the central bank appears to be lowing moving away from its easing cycle.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

13:30

8:30

Change in Non-Farm Payrolls (NOV)

86K

171K

USD

13:30

8:30

Unemployment Rate (NOV)

7.9%

7.9%

USD

13:30

8:30

Change in Private Payrolls (NOV)

100K

184K

USD

13:30

8:30

Change in Manufacturing Payrolls (NOV)

-6K

13K

USD

13:30

8:30

Change in Household Employment (NOV)

410

USD

13:30

8:30

Underemployment Rate (U6) (NOV)

14.6%

USD

13:30

8:30

Average Hourly Earning (MoM) (NOV)

0.2%

0.0%

USD

13:30

8:30

Average Hourly Earning (YoY) (NOV)

1.7%

1.6%

USD

13:30

8:30

Average Weekly Hours (NOV)

34.4

34.4

CAD

13:30

8:30

Labor Productivity (QoQ) (3Q)

-0.4%

CAD

13:30

8:30

Net Change in Employment (NOV)

7.0K

1.8K

CAD

13:30

8:30

Unemployment Rate (NOV)

7.4%

7.4%

CAD

13:30

8:30

Full Time Employment Change (NOV)

7.3

CAD

13:30

8:30

Part Time Employment Change (NOV)

-5.5

CAD

13:30

8:30

Participation Rate (NOV)

66.8

USD

14:55

9:55

U. of Michigan Confidence (DEC P)

82.0

82.7

GBP

15:00

10:00

NIESR Gross Domestic Product Estimate (NOV)

0.5%

EUR

15:00

10:00

ECB's Jens Weidmann Speaks on Euro Economy

USD

20:00

15:00

Consumer Credit (OCT)

$10.000B

$11.365B

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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