Draghi to “wait and see” when it comes to QE?
On the Sterling front, we have witnessed a mixed couple of days of trading, particularly against the USD. The pair has been somewhat range bound for a couple of weeks now with the respective Central Banks dictating most of the price action between the two. By and large, the speeches from Bank of England Governor, Mark Carney, have been nothing short of disappointing, especially for those who are trying to gather further clues as to what his thoughts are surrounding monetary policy and any potential rate hike.This has left many many market participants in limbo and feeling that price action is going to be limited until concrete signs come forth.
Today, the data to look to comes by way of UK retail sales which is due for release at 09:30am. General consumer appetite in the UK appears strong, however, only marginal growth is being forecast for the month of September. Given the indecisiveness in GBP/USD with the pair seemingly reluctant to break in either direction, this data is not expected to show us much/if any exciting price action.
There has been more action in GBP/EUR with the pair beginning to show signs of momentum again, this time in favour of the Pound. Safe-haven flows into the Euro seem to be fading despite fears of a hard landing in China. Chinese President, Xi Jinping, did state yesterday that he doesn’t see any hard landing as such, but has acknowledged downward pressures on the world’s second largest economy. As safe haven flows diminish, many analysts expect a continued Euro descent, but only for the short term.
Expectations on what the European Central Bank (ECB) will do today will come to an end as Draghi outlines the current interest rate decision alongside the monetary policy statement. However, the markets expect it will be very unlikely that the central bank will move rates or alter the quantitative easing programme, despite speculation that more easing is needed following the Fed’s dovish stance in September. Further pressure for easing is building, especially given that inflation turned negative in September and Euro area GDP growth is set to weaken on the back of the slowdown in China and other emerging markets. Draghi is most likely to remain in a “wait and see” mode, while outlining the ECB’s readiness to do more should they need to.
Other news to note is that the German Chamber of Commerce has revised its 2015 GDP forecast lower to 1.7% from 1.8%, whilst exports have also been revised down from 6% to 5%. These are surefire signs that Europe’s largest economy really has experienced a difficult year and business conditions are forecast to remain difficult for the remainder of the year at least.