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Forex Flash: Key day for Europe with central bank meets – BTMU

Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that it is a key day in Europe, with both the BOE and ECB announcing monetary policy decisions.

He is expecting no policy change from either central bank and would argue that possibly the BOE should be easing today given the ongoing weakness since the last meeting, but the FT front page story that Chancellor Osbourne “urges” the BOE to take action probably means there is little chance Governor King would respond with a policy easing. He writes, “The FT article is clearly overplaying this with its interpretation of Osbourne’s comment but nonetheless we doubt the BOE will act today.”

Looking to the continent, Halpenny notes that the ECB of course will also do nothing given the “positive contagion” that is now evident in the Eurozone according to President Draghi. However, we would expect a slightly less optimistic tone in the press conference than last month given that the momentum in the sovereign debt markets has begun to reverse and that “positive contagion” is not as evident today as it was a month ago.

He notes that the Spanish 10-year spread is now about 50bps higher than on the day of the ECB meeting in January. No doubt given the political comments of late in regard to the value of the Euro, the market will definitely get a question on the Euro but with EUR/USD here at around 1.3500 he wouldn’t expect anything other than the standard comment and a possible reading of oft quoted G20 statement on foreign exchange.

Finally, he comes to Carney´s testimony to the Treasury Select Committee and notes that given the high expectations of a shift in policy once he becomes governor, his comments may well be market moving. However, Mark Carney is an experienced central banker and in all likelihood his comments will be well balanced and cautious. He finishes by writing, “We expect today’s events to be broadly Euro and pound neutral with possible upside risks for the pound if Mark Carney conducts a balanced cautious testimony.”

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