EUR: As usual, the main focus will be with the ECB press conference at 12:30 GMT. There is still a chance that the deposit rate may be put into negative territory as early as today’s meeting (penalising banks that ‘park’ overnight funds back at the ECB).
Otherwise, it will be a question of listening for any dovish hints on future policy.
More: Forex Analysis: EUR/USD Wavers after 1.3000 Breakdown
GBP: Recent UK data had been mostly on the positive side, with yesterday’s PMI data (56.9) stronger than expected (54.5). At the Bank of England rate announcement today, the market expects rates to remain at 0.50% and an extension of QE is also doubtful. The number of members who have been voting in favour is reduced with Mervyn King’s departure and the recent data has not been as supportive for such a move.
USD: The Independence Day holiday will ensure volumes are lower, with this largely carrying over to Friday as many take this day off also.
Idea of the Day
The US may be on holiday, but the main central banks in Europe meet today, with both gatherings key for FX, but for different reasons. The Bank of England for the fact that is the first headed by the new Governor. It’s pretty unlikely that further quantitative easing will be seen, not least because he’s only one vote of 9. Two of the current members have been voting for more QE since February, but recent data has been more positive for the economy.
The main risk is that the Bank breaks with the tradition of not issuing a statement when policy is kept on hold (with very few exceptions) and if so, this could cause some volatility in sterling if it gives an early insight into the new governor’s thinking.
Otherwise, the main risk for the ECB is that we see a move to a negative deposit rate, something which Draghi appears to have warmed to in recent months. If seen, it would be a negative for the euro, at least in the short-term.
Latest FX News
GBP: Sterling gaining a modest lift ahead of today’s BoE meeting, rising for the sixth consecutive month. Cable topped out just above the 1.53 level, but retains at air of caution ahead of today’s announcement.
EUR: The push higher in yields seen in Portugal yesterday had only a modest impact on the single currency. Portugal is already in receipt of a bailout, whilst Spain and Italy are still insulated to a degree by the ECB’s OMT bond buying programme (which has not been activated).
JPY: Weekly data again showing Japanese investors net sellers of overseas assets for the seventh consecutive week.
AUD: A modest recovery seen in the Aussie overnight, once again from fresh year lows (0.9037), but it remains the weakest performer on the majors over the past month. The yen was the favoured conduit via which to sell the euro yesterday, aiding the push below the 100 level on USDJPY.
Share
