Bank Of Canada cut rates

Today's Highlights

ECB announcement

Bank Of England Minutes

Bank Of Canada cut rates

FX Market Overview

Yesterday was a very eventful day and it looks as if today will follow suit with the greatly anticipated ECB Conference. It is now broadly expected that the central bank will announce Quantitative Easing after the Eurozone slipped into deflation. The market expects Mario Draghi to announce a 550 billion-euro ($635 billion) bond-purchase program to stave off deflation and boost the Eurozone’s flagging economy.

Germany has made no secret of its objections to QE and there are reports that ECB President Draghi had presented a ‘German friendly’ QE plan to Angela Merkel and the German Finance Minister, Schaeuble. This would involve national central banks buying their own government bonds to ring-fence risk by country. Schaeuble noted that Germany must accept the actions of the ECB in order to support its independence. There are strong suggestions that Greek bonds will be excluded from any QE announcement by the ECB due to their ‘junk’ status.

Quantitative Easing has largely been priced in, however, as is so often the case, the devil is in the detail. The timing of actual implementation, the size of the programme and whether national central banks will share risk is all under discussion. It is worth remembering that the ECB have a history of disappointing the markets and anything less than full blown 550 Billion QE today will result in a considerable drop in the sterling-euro exchange rate.

Yesterday saw the release of raft of UK data, the most notable being the Bank of England minutes. Two of the Bank of England officials who had dissented in previous meeting to push for higher interest rates in the U.K. dropped their campaign this month, reinforcing the view the bank of England won’t raise its rates until next year. Sterling fell on the news but, after the market had digested the positive employment data, made a recovery in the afternoon. The jobless rate fell below 6% for the first time in more than six years and as the UK employment market continues to look healthy. Low inflation and average weekly earnings rising by 1.8% combine to paint a positive picture for the British worker.

Yesterday, the Bank of Canada shocked the market by announcing that they were to lower they target for the overnight rate by one-quarter of one percentage point to 0.75% which sent the Canadian dollar tumbling. This decision is in response to the recent sharp drop in oil prices, which will be negative for Canada’s growth prospects.