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Currency Report 7/11 No movement seen for GBP, EUR & USD prior ECB policy decision.

Currency Report 7/11 No movement seen for GBP, EUR & USD prior ECB policy decision.

 
Old Nov 7th 2013, 11:06 am
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Default Currency Report 7/11 No movement seen for GBP, EUR & USD prior ECB policy decision.

Despite better industrial production data yesterday following on from the better services PMI, Sterling didn’t manage any further significant progress. Nevertheless, analysts see room for Sterling to gain v US Dollar in particular, though much of today will depend on the Euros reaction to the ECB meeting. Today’s BoE MPC meeting should be a non-event, but there are some expectations building of a more hawkish tone in the QIR next week, so if the Euro does benefit after the ECB meeting, there is potential for GBP/USD to test recent highs at 1.6260 before the end of the week.

The ECB meeting is the major focus today, and although the majority of forecasters don’t expect any change in key rates or any announcement of other measures to introduce monetary stimulus there is still some risk of a move or at least some indication of a potential future move priced in. In practice, we see very little reason for the ECB to react to the decline in inflation reported last week with immediate action. A lot of the inflation dip was down to weaker energy prices, and this won’t reduce inflation longer term, and may in any case be temporary, so there is little reason for the ECB to react. Scope for moves will also depend on market sentiment in response to the US GDP data, and may also be restricted by the approach of the US employment report tomorrow.

The US side of the story will have some input from Q3 GDP and the November 2 initial claims data today, but the USD tone looks more likely to be determined by the impact of the ECB’s rate decision and press conference. Yesterday saw the USD slip back a little in part on fading expectations of an ECB rate cut, but also because of increased talk of a potential reduction in the Fed’s unemployment threshold above which they are not prepared to consider raising rates.
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