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Eyes on ECB and BoE monetary policy meetings

Eyes on ECB and BoE monetary policy meetings

The EUR has weakened against the majors this morning amid persistent concerns surrounding the Eurozone economy following downbeat comments from the European Central Bank (ECB) President yesterday and after the European Commission lowered its 2013 economic growth forecast for the region. Meanwhile markets are keeping an eye on the ECB and the Bank of England (BoE) monetary policy meetings due later today and German export data which is expected to indicate a decline in September.

The European Central Bank is expected to leave interest rates on hold at 0.75% for the fourth straight month.  However with the underlying economic problems and gloomy data indicated earlier this week with the fear of economy shrinking more than expected in the fourth quarter, the ECB may eventually respond to it by cutting rates. ECB President Mario Draghi gave a downbeat assessment of the euro zoneeconomy in a speech to German bankers on Wednesday. With “Unemployment deplorably high and overall economic activity being weak, the growth of money and credit will be subdued, indicated by ECB President.

Even BoE is expected to announce a pause to its economic stimulus programme on Thursday and keep interest rates on hold after recent official data showed Britain had exited a deep recession in the third quarter of 2012. Analyst expects that MPC is most likely to maintain the quantitative easing (QE) target at £375 billion and effectively enter a pause in the programme.

On the FX market, GBP/USD trended in tandem with EUR/USD throughout the session, as market participants used the re-election of Obama to book profits and instead turn somewhat bearish on the outlook given the looming risk events that are due to take place in Europe and the UK on Thursday. On Thursday, the MPC are widely expected to keep both the benchmark borrowing rate and the Asset Purchase Facility (APF) unchanged.

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