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Forex Flash: BoE and ECB are today´s key events - BTMU

Derek Halpenny, European head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ notes that the key events of today are the BoE and ECB rate and policy decisions.

He sees that the meetings are closer calls than most would have expected just a few weeks ago but he doubts the ECB will cut rates today although we do think a cut possibly by June-July is likely. He writes, “Key today will be the updated forecasts.”

In December, Halpenny notes that the ECB projected growth of -0.3% this year and 1.2% for next year. Inflation was forecast at 1.6% this year and 1.4% next year. Given the weak start to 2013, he feels that there is certainly a risk of some reduction in forecasts and anything lower than 1.4% inflation for next year would be pushing the ECB’s price stability definition to the limit. He writes, “So there are risks of a downbeat press conference which could undermine the euro – but if there is no rate cut, President Draghi would also have to use the press conference to justify that.”

Looking to the BoE he thinks that there is a higher chance of QE being reactivated by the BOE today and hence the pound remains vulnerable to the downside. He notes that the front page of the FT covers the story of the government wish to hand more power to the BOE to kick-start the UK economy and under new leadership we may get that along with a more growth-orientated mandate, a development which he feels holds echos of the situation in Japan.

He finishes by writing, “Throw in the fact that the BOE has already been sending signals of the benefit of a weaker pound and you have plenty of reason to keep selling the pound. GBP/USD has dropped notably but we see no reason for that to discourage a more sustained breach below the 1.5000 level over the coming months.”

Forex Flash: Chinese MPC members signal potential for 2013 rate hike - Nomura

Nomura economist Zhiwei Zhang notes that the Economic Daily News reported that, yesterday, Qian Yingyi, a member of the Monetary Policy Committee, said the economy faces intense pressure to achieve its 3.5% CPI and 13% M2 growth targets in 2013, and a rate hike is possible.
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Forex: EUR/USD boosting up ahead of bond auctions

Growing risk sentiment ahead of the ECB is making its impact on the FX market, contributing to a new wave of bids on the EUR/USD, now up to 1.3037. Above is Thursday's close of 1.3048, then the weekly high of 1.3076 before heading towards the 1.3100 psychological level.
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