Analysts contributing to the forecast report on the ECB and BoE September monetary policy decisions agree that we shouldn't see any action from neither of the central banks this Thursday. The ECB is still waiting to evaluate the impact of the measures and the rate cut carried out in recent months, while the BoE MPC will continue discussing the timing of the first rate hike, with possibly more members deciding to vote in favor of it.
As Ahmed Mamdouh suggests, despite a general expectation for an announcement of QE by the ECB in September, "to halt the low inflation and bolster recovery," the central bank will most probably wait some more time in order to see the impact of measures which will come into effect this month, such as the TLTRO program.
Yohay Elam, who reminds that in his speech delivered in Jackson Hole the ECB head "acknowledged that not all inflation was temporary," also agrees that it doesn't suggest any immediate moves. On the other hand Mario Draghi could mention future plans for action during the press conference following the monetary policy announcement. "If Draghi plays down the chance of QE (or ABS), the euro could jump back up, and that is certainly undesirable for exports and for inflation," the analyst adds.
Jamie Coleman suggests there are three paths Draghi could take: "announce the structure of the ABS purchase program," carry out "a rate cut of 5-10 bp to the refi and deposit rates," or announce that "the ECB is laying the legal and operational ground work for quantitative easing." This last option is the most probable in his opinion.
Meanwhile, some experts, such as Steve Ruffley, are growing irritated with ECB's lack of action. "When do you stop bluffing and show your hand?" he asks Mario Draghi, whom he accuses of ignoring the poor data coming out from the EU. "It’s all like a car crash happening in slow motion and I for one as an economist am literally bored of expecting some solid forward guidance from the not so ‘super’ Mario."
As far as the BoE is concerned, the fact that two MPC members voted in favor of a rate hike in August, doesn't mean the rest will follow in their footsteps in September, although a few other members might be inclined to join them.
"Last month's CPI drop, which was 0.2% below expectations, doesn't invite to raise rates yet," Alberto Muñoz suggests, predicting that the rate hike will come not earlier than the first half of 2015.
Adam Narczewski also doesn't expect any fireworks from this week's MPC meeting, emphasizing that market attention will rather focus on the release of the minutes later this month.
"So the meeting should not be very crucial for the GBP as the statement after the interest rate decision is usually very short," he believes. "The most important data coming up that can cause some action from the BoE is the wages report on Sept 17th."
The BoE and the ECB will announce their monetary policy decisions on September 4 at 11:00 and 11:45 GMT, respectively. Below you will find the full forecasts of the contributing market experts.
ECB:
"Draghi all but promised further action when he spoke at Jackson Hole last month, so it is time to make good on that vow. He can do that in a number of ways.
1. He can announce the structure of the ABS purchase program, at long last. This may have to wait since the ECB just appointed BlackRock as its ABS adviser last week
2. A rate cut of 5-10 bp to the refi and deposit rates. 50% chance of this taking place.
3. Best adds are for an announcement that the ECB is laying the legal and operational ground work for quantitative easing. This is a freebie for Draghi. He can set the stage for QE while never implementing the program, exactly as he did with OMT. I think the odds of this happening are very high.
Any or all of the above should weigh on the euro further. With the market already heavily short, major downside will only come once the ECB balance sheet begins to expand. Heavy take-up of the TLTRO program would accomplish that goal in the middle of September. If demand for TLTRO funds prove less than expected, EUR/USD could be vulnerable to a squeeze later on this month."
ECB:
"As the rest of the world looks to put rates back up to normal levels Mario and the ECB are still thinking of cunning ways to stimulate growth. All I can say is good luck. With poor figures and disillusionment from France, one of the biggest member states, there still seems to be no good news for the EU.
The ECB will continue to put out the message they will use every measure at their disposal to stimulate the EU, but really what is? How much money has Germany got? When do you stop bluffing and show your hand? It’s all like a car crash happening in slow motion and I for one as an economist am literally bored of expecting some solid forward guidance from the not so ‘super’ Mario.
I still maintain the Euro is not going to last. I see it being split in to a North and South Euro in the next 5 years."
BoE:
"If you spot a trend, you’re already too late. This is currently the case with cable retreating from 6 years high, and it’s and the majority of retail investors who are being caught out. The reason we are retracing the highs is that the market has now priced in that the UK will move on rates first. This is something I have said on FXstreet for the majority of this year.
Everyone now seeking GBP strength is falling fowl to the institutions and money markets tracking their profit. Mark Carney and the BoE now need to manage expectations. There is a lot, in fact a staggering amount of house hold debt out there. People have been living in bubble land and although real wages have done nothing to combat inflation, as house prices has risen everyone is relatively happy.
The real test come when interest rates do go up and how the nation copes. I don’t think the wider economy will suffer too much in the short term We have made sure the banks have all their money back, so when we do see a rise in defaults they are pretty secure."
ECB:
"No change is expected now from the ECB despite Draghi's Jackson Hole speech in which he acknowledged that not all inflation was temporary. However, Draghi could weigh on the euro with promises for action, just like he did in May.
The TLTRO program comes into effect only now it seems there is no consensus for new immediate action. Also the tick up in core inflation can make the central bank wait. However, the ECB would certainly like to continue having a weak or even weaker euro. So, there is a good chance for stronger rhetoric from Draghi, promising imminent action in October or November: some form of QE. If Draghi plays down the chance of QE (or ABS), the euro could jump back up, and that is certainly undesirable for exports and for inflation."
BoE:
"No action is likely from the BOE at least until November. The 7 members that voted against a move in August will probably have the upper hand in waiting. Cooling headline inflation, slow wage inflation and some early signs of moderation in housing prices could push the decision back. While the tension is higher around the MPC's decisions, the real action will probably await us in the meeting minutes."
ECB:
"The ECB meeting can be very interesting. I do not expect any changes in monetary policy but we have to remember that we will have new projections and the next will be presented in December. The projection should show a lower inflation path and the question is if that will be enough for Mario Draghi to communicate more precisely a possible QE during his press conference."
BoE:
"I do not expect much from the BoE on its next monetary policy meeting. I believe the votes for an interest hike will be 2-7 (2 members voting for a hike) but for sure we will find that out when the minutes are published. So the meeting should not be very crucial for the GBP as the statement after the interest rate decision is usually very short. The most important data coming up that can cause some action from the BoE is the wages report on Sept 17th."
ECB:
"Although markets expect to see an announcement of quantitative easing measures to halt the low inflation and bolster recovery, it is likely that the ECB will postpone such action until deploying the measures already announced in June, which include targeted longer-term refinancing operations and eventual asset-backed securities purchases, while track the impact of slashing the deposit rate into negative territory and cutting the benchmark interest rate to a record low."
BoE:
"This is indeed a tough time for the Bank of England. Mark Carney and most of his colleagues of the MPC seem okay with record-low borrowing costs for the time being despite the calls for rate increase last meeting from Weal and McCafferty, as the rising geopolitical risks and remarkably-weak wage growth continue to threat the UK recovery. An early rise in interest rates is unlikely to be on the agenda this week; however any positive clues over wages help the MPC move closer to hiking interest rates sooner than expected, perhaps next year."
ECB:
"The drop in Eurozone inflation and the stagnation of the economy in Q2 have increased the odds of more easing by the European Central Bank. The ECB President Draghi has also been very clear in recent speeches that the door is wide open to easing monetary policy further. In fact, the ECB has announced recently that it is looking to hire consultants to advise the central bank on QE strategies. With the ECB one step closer to launching a QE program, the divergence in the monetary policies between the ECB and other central banks is becoming bigger and even more visible, which should keep the EUR under pressure."
BoE:
"We now know that there were two MPC members at the Bank of England who voted for a rate hike in August and they will probably cast the same vote in September. Of course, the majority of the nine MPC members are still not in a hurry to raise rates, but if the two "hawks" are joined by one or two more, the market will begin to price expectations of a shift in the policy makers' views which could lead to a rate hike in the early part of next year. Naturally, such expectations should be supportive of the GBP. However, we will probably not see significant GBP strength until the Scottish independence vote on September 18 is behind us. Provided that the vote is not a 'yes' (which will really complicate things for the U.K. and its currency) the GBP would be able to clear a major obstacle to its future appreciation."
ECB:
"Despite the dovish comments from Draghi in Jackson Hole, I don't expect the ECB to embark on sovereign QE. The most likely scenario is a very dovish Draghi, expressing his concerns about the anchoring of long term inflation expectations, as well as introducing some tweaks to TLTRO conditions and the pre-announcement of ABS purchases. Also we could have some downward revisions to GDP and inflation forecasts. All in all, probably this is not what the market has discounted in EUR/USD, so as long as Draghi doesn't deliver, we should have an important short squeeze, bringing EUR/USD back to 1.3250-1.3290 resistance area."
BoE:
"I expect the Bank of England to remain on hold despite the last minutes showed that two Monetary Policy Committee members voted in favour of a rate hike. Last month's CPI drop, which was 0.2% below expectations, doesn't invite to raise rates yet. Therefore I maintain that the next BoE rate hike will take place in the first half of 2015. Cable will probably remain unchanged after the decision is released."
ECB:
"There’s indeed a high probability the ECB will finally establish quantitative easing or a large scale asset purchase, but is also possible for Super Mario to state the measures announced at latest June meeting like negative rates and the TLTROS, still need time to work out its effectiveness.
Nevertheless, deflation risk is already priced in the EUR value, as shown on this Friday market reaction to the 0.3% reading. That means that at this point, market needs a certain action from the Central Bank: an announcement will likely be seen as a movement to fight deflation, resulting in a higher EUR at least in the short term. If on the other hand, Draghi keeps the wait and see stance, risk for the currency will remain to the downside rather on USD self strength, than any announcement the ECB may do. For the most, market expects a moderate dovish Draghi, and little surprises for this month. Expectations this time, may be higher than the result, another factor than can trigger strong intraday market moves."
BoE:
"BoE monetary policy meeting will probably be uneventful."
As Ahmed Mamdouh suggests, despite a general expectation for an announcement of QE by the ECB in September, "to halt the low inflation and bolster recovery," the central bank will most probably wait some more time in order to see the impact of measures which will come into effect this month, such as the TLTRO program.
Yohay Elam, who reminds that in his speech delivered in Jackson Hole the ECB head "acknowledged that not all inflation was temporary," also agrees that it doesn't suggest any immediate moves. On the other hand Mario Draghi could mention future plans for action during the press conference following the monetary policy announcement. "If Draghi plays down the chance of QE (or ABS), the euro could jump back up, and that is certainly undesirable for exports and for inflation," the analyst adds.
Jamie Coleman suggests there are three paths Draghi could take: "announce the structure of the ABS purchase program," carry out "a rate cut of 5-10 bp to the refi and deposit rates," or announce that "the ECB is laying the legal and operational ground work for quantitative easing." This last option is the most probable in his opinion.
Meanwhile, some experts, such as Steve Ruffley, are growing irritated with ECB's lack of action. "When do you stop bluffing and show your hand?" he asks Mario Draghi, whom he accuses of ignoring the poor data coming out from the EU. "It’s all like a car crash happening in slow motion and I for one as an economist am literally bored of expecting some solid forward guidance from the not so ‘super’ Mario."
As far as the BoE is concerned, the fact that two MPC members voted in favor of a rate hike in August, doesn't mean the rest will follow in their footsteps in September, although a few other members might be inclined to join them.
"Last month's CPI drop, which was 0.2% below expectations, doesn't invite to raise rates yet," Alberto Muñoz suggests, predicting that the rate hike will come not earlier than the first half of 2015.
Adam Narczewski also doesn't expect any fireworks from this week's MPC meeting, emphasizing that market attention will rather focus on the release of the minutes later this month.
"So the meeting should not be very crucial for the GBP as the statement after the interest rate decision is usually very short," he believes. "The most important data coming up that can cause some action from the BoE is the wages report on Sept 17th."
The BoE and the ECB will announce their monetary policy decisions on September 4 at 11:00 and 11:45 GMT, respectively. Below you will find the full forecasts of the contributing market experts.
Jamie Coleman - FXBeat Editor:
ECB:"Draghi all but promised further action when he spoke at Jackson Hole last month, so it is time to make good on that vow. He can do that in a number of ways.
1. He can announce the structure of the ABS purchase program, at long last. This may have to wait since the ECB just appointed BlackRock as its ABS adviser last week
2. A rate cut of 5-10 bp to the refi and deposit rates. 50% chance of this taking place.
3. Best adds are for an announcement that the ECB is laying the legal and operational ground work for quantitative easing. This is a freebie for Draghi. He can set the stage for QE while never implementing the program, exactly as he did with OMT. I think the odds of this happening are very high.
Any or all of the above should weigh on the euro further. With the market already heavily short, major downside will only come once the ECB balance sheet begins to expand. Heavy take-up of the TLTRO program would accomplish that goal in the middle of September. If demand for TLTRO funds prove less than expected, EUR/USD could be vulnerable to a squeeze later on this month."
Steve Ruffley - Chief Market Strategist at InterTrader.com:
ECB:"As the rest of the world looks to put rates back up to normal levels Mario and the ECB are still thinking of cunning ways to stimulate growth. All I can say is good luck. With poor figures and disillusionment from France, one of the biggest member states, there still seems to be no good news for the EU.
The ECB will continue to put out the message they will use every measure at their disposal to stimulate the EU, but really what is? How much money has Germany got? When do you stop bluffing and show your hand? It’s all like a car crash happening in slow motion and I for one as an economist am literally bored of expecting some solid forward guidance from the not so ‘super’ Mario.
I still maintain the Euro is not going to last. I see it being split in to a North and South Euro in the next 5 years."
BoE:
"If you spot a trend, you’re already too late. This is currently the case with cable retreating from 6 years high, and it’s and the majority of retail investors who are being caught out. The reason we are retracing the highs is that the market has now priced in that the UK will move on rates first. This is something I have said on FXstreet for the majority of this year.
Everyone now seeking GBP strength is falling fowl to the institutions and money markets tracking their profit. Mark Carney and the BoE now need to manage expectations. There is a lot, in fact a staggering amount of house hold debt out there. People have been living in bubble land and although real wages have done nothing to combat inflation, as house prices has risen everyone is relatively happy.
The real test come when interest rates do go up and how the nation copes. I don’t think the wider economy will suffer too much in the short term We have made sure the banks have all their money back, so when we do see a rise in defaults they are pretty secure."
Yohay Elam - Analyst at Forex Crunch:
ECB:"No change is expected now from the ECB despite Draghi's Jackson Hole speech in which he acknowledged that not all inflation was temporary. However, Draghi could weigh on the euro with promises for action, just like he did in May.
The TLTRO program comes into effect only now it seems there is no consensus for new immediate action. Also the tick up in core inflation can make the central bank wait. However, the ECB would certainly like to continue having a weak or even weaker euro. So, there is a good chance for stronger rhetoric from Draghi, promising imminent action in October or November: some form of QE. If Draghi plays down the chance of QE (or ABS), the euro could jump back up, and that is certainly undesirable for exports and for inflation."
BoE:
"No action is likely from the BOE at least until November. The 7 members that voted against a move in August will probably have the upper hand in waiting. Cooling headline inflation, slow wage inflation and some early signs of moderation in housing prices could push the decision back. While the tension is higher around the MPC's decisions, the real action will probably await us in the meeting minutes."
Adam Narczewski - Financial Analyst at X-Trade Brokers, XTB:
ECB: "The ECB meeting can be very interesting. I do not expect any changes in monetary policy but we have to remember that we will have new projections and the next will be presented in December. The projection should show a lower inflation path and the question is if that will be enough for Mario Draghi to communicate more precisely a possible QE during his press conference."
BoE:
"I do not expect much from the BoE on its next monetary policy meeting. I believe the votes for an interest hike will be 2-7 (2 members voting for a hike) but for sure we will find that out when the minutes are published. So the meeting should not be very crucial for the GBP as the statement after the interest rate decision is usually very short. The most important data coming up that can cause some action from the BoE is the wages report on Sept 17th."
Ahmad Mamdouh - Analyst at ICN.com:
ECB:"Although markets expect to see an announcement of quantitative easing measures to halt the low inflation and bolster recovery, it is likely that the ECB will postpone such action until deploying the measures already announced in June, which include targeted longer-term refinancing operations and eventual asset-backed securities purchases, while track the impact of slashing the deposit rate into negative territory and cutting the benchmark interest rate to a record low."
Ahmad Sweiss - Analyst at ICN.com:
BoE:"This is indeed a tough time for the Bank of England. Mark Carney and most of his colleagues of the MPC seem okay with record-low borrowing costs for the time being despite the calls for rate increase last meeting from Weal and McCafferty, as the rising geopolitical risks and remarkably-weak wage growth continue to threat the UK recovery. An early rise in interest rates is unlikely to be on the agenda this week; however any positive clues over wages help the MPC move closer to hiking interest rates sooner than expected, perhaps next year."
Ilian Yotov - Portfolio Manager at ATFX Currency Management:
ECB:"The drop in Eurozone inflation and the stagnation of the economy in Q2 have increased the odds of more easing by the European Central Bank. The ECB President Draghi has also been very clear in recent speeches that the door is wide open to easing monetary policy further. In fact, the ECB has announced recently that it is looking to hire consultants to advise the central bank on QE strategies. With the ECB one step closer to launching a QE program, the divergence in the monetary policies between the ECB and other central banks is becoming bigger and even more visible, which should keep the EUR under pressure."
BoE:
"We now know that there were two MPC members at the Bank of England who voted for a rate hike in August and they will probably cast the same vote in September. Of course, the majority of the nine MPC members are still not in a hurry to raise rates, but if the two "hawks" are joined by one or two more, the market will begin to price expectations of a shift in the policy makers' views which could lead to a rate hike in the early part of next year. Naturally, such expectations should be supportive of the GBP. However, we will probably not see significant GBP strength until the Scottish independence vote on September 18 is behind us. Provided that the vote is not a 'yes' (which will really complicate things for the U.K. and its currency) the GBP would be able to clear a major obstacle to its future appreciation."
Alberto Muñoz, Ph.D. - Forex Analyst at FXstreet.com:
ECB:"Despite the dovish comments from Draghi in Jackson Hole, I don't expect the ECB to embark on sovereign QE. The most likely scenario is a very dovish Draghi, expressing his concerns about the anchoring of long term inflation expectations, as well as introducing some tweaks to TLTRO conditions and the pre-announcement of ABS purchases. Also we could have some downward revisions to GDP and inflation forecasts. All in all, probably this is not what the market has discounted in EUR/USD, so as long as Draghi doesn't deliver, we should have an important short squeeze, bringing EUR/USD back to 1.3250-1.3290 resistance area."
BoE:
"I expect the Bank of England to remain on hold despite the last minutes showed that two Monetary Policy Committee members voted in favour of a rate hike. Last month's CPI drop, which was 0.2% below expectations, doesn't invite to raise rates yet. Therefore I maintain that the next BoE rate hike will take place in the first half of 2015. Cable will probably remain unchanged after the decision is released."
Valeria Bednarik - Chief Analyst with FXStreet:
ECB:"There’s indeed a high probability the ECB will finally establish quantitative easing or a large scale asset purchase, but is also possible for Super Mario to state the measures announced at latest June meeting like negative rates and the TLTROS, still need time to work out its effectiveness.
Nevertheless, deflation risk is already priced in the EUR value, as shown on this Friday market reaction to the 0.3% reading. That means that at this point, market needs a certain action from the Central Bank: an announcement will likely be seen as a movement to fight deflation, resulting in a higher EUR at least in the short term. If on the other hand, Draghi keeps the wait and see stance, risk for the currency will remain to the downside rather on USD self strength, than any announcement the ECB may do. For the most, market expects a moderate dovish Draghi, and little surprises for this month. Expectations this time, may be higher than the result, another factor than can trigger strong intraday market moves."
BoE:
"BoE monetary policy meeting will probably be uneventful."
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