Investors eye more ECB stimulus after weak Eurozone inflation data, Sterling recovers slightly
26/Feb/2016 • Currency Updates•
Expectations for additional stimulus measures from the European Central Bank at their next monetary policy meeting in March were ramped up yesterday following the release of further weak inflation figures in the Euro-area.
Headline inflation in the 19-country Eurozone was revised down for January, to a meagre 0.3% on an annualised basis, further emphasising the need for larger-scale easing from the ECB.
President Mario Draghi is widely expected to announce another cut in the ECB’s deposit rate and potentially additional quantitative easing when the central bank next meets in two weeks’ time. We expect this move to recommence the Euro’s downward trend against almost every major currency.
I’ll be on a Twitter chat with Dan Davies, Senior Research Advisor at Frontline Analysts, and my colleague Enrique Diaz-Alvarez during the press conference following the ECB Governing Council meeting. Let’s start the discussion now, simply tweet using the hashtag #EburyChat16.
The Pound received some much needed respite on Thursday following a recent sell-off that has left Sterling hovering near seven-year lows against the US Dollar. Sterling traded within a narrow band for much of the day. This continues to provide a significant challenge for UK importers, who last experienced such unfavourable rates back in March 2009.
Fourth-quarter UK growth figures were left unrevised yesterday, with the economy driven almost exclusively by consumer spending in the final three months of 2015.
In the US, the Dollar dipped against its major peers despite some resoundingly impressive data that suggests the US economy is weathering the storm from a global economic slowdown.
Fourth-quarter growth figures in the US will be the main event during trading today when released at 13:30 UK time.
Major currencies in detail:
Sterling was stable against the US Dollar throughout much of the day on Thursday, ending 0.2% higher.
The Pound was unmoved by UK growth figures yesterday, as they were left unchanged for the fourth quarter. The economy grew by 0.4% in the three months to December and by 1.9% on an annualised basis.
A sharp fall in business investment and a moderate drag from trade was more than offset by robust consumer spending, which expanded by over 3% for the year.
Meanwhile, Britain’s Finance Ministry claimed it was not putting in contingency plans for a Brexit, despite recent opinion polls that put the ‘in’ campaign only marginally ahead.
Consumers in the UK continue to benefit from near-zero inflation that remains comfortably below the level of wage growth, having been solidly positive in real terms throughout the entirety of 2015.
The single currency ended 0.1% higher versus the US Dollar on Thursday, despite more weak economic data.
Inflation continued to remain substantially below target last month, with the fall in oil prices to a 13-year low weighing heavily on headline price growth. The core index was equally disappointing, rising by just 1%.
Recent commentary from a number of central bank members, notably Mario Draghi, suggests we’re all but certain to see additional stimulus measures next month.
Earlier in the day, German consumer confidence picked up slightly despite recent uncertainty in global financial conditions. The monthly index from GfK rose by 0.1 points to 9.4.
A mostly quiet end to the week today, with economic sentiment data this morning unlikely to rock the boat. Investors remain focused on the ECB’s next meeting on 10 March.
Despite some strong data, the US Dollar index was unchanged yesterday.
Economic indicator data in the US yesterday made for an encouraging reading. Durable goods orders surged well above expectations in a clear sign that the US manufacturing industry is recovering well, having suffered one of its worst years since the global recession in 2015.
New orders for durable goods rose by 4.9% in January, marking its largest single monthly rise since sales spiked in July 2014. Excluding orders for the historically volatile transport sector, orders increased by 1.8%, well above forecasts.
On the monetary policy front, Fed members Bullard and Williams both spoke, although provided little new information, with the latter emphasising rate hikes in the US would be gradual.
GDP figures at 13:30 UK time could move the Dollar this afternoon if we see any surprises. Consumer spending and income figures at 15:00 UK time will also be worth noting.
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