ECB Meeting Set to Upset Traders Eyeing Action

ECB

GBP/USD is currently trading at about 1.4160, GBP/EUR is back to 1.3000 this morning, with the Euro weakening a slight bit. The Sterling also a little bit stronger over the course of the past 24- hours, with unemployment data on Tuesday touching the lowest level in 10- years, but the tightness in labor market is not bringing about an increase in wages quite yet.

A 2% rise in wages on the 3- month average, which is a little bit less than we have the previous month and obviously we’re hoping in central bankers and policy makers on continuing to hope that wages start to rise. The low inflation outlook that we’ve seen over the course of the past year or so, may have limited the ability for employees to go to their bosses and ask for pay increases.

If we continue to see inflation move higher, we’ll continue to see the tightness in the labor market maybe extend a little bit more, then wage pressures are likely to build over the course of 2016. We’ve moved our thoughts of when the #BOE would raise interest rates from May of this year given the weakness that we’ve seen in headline inflation, the risks around the #European Union referendum and the continual market weakness, Market Opinion suggests a move from May of this year, until November of 2016.

As I’ve said, the Sterling is driving higher this morning so far, with retail sales at 09:30 BST, at Capital Street Research Desk we believe this may also allow the Sterling to stretch its leg a little bit more. Although, most of the Black Friday sales were part of November’s figure, December figure would have benefited from Cyber Monday.

Elsewhere, it is continued bad news as many of you may have seen on Newspaper headlines that equity markets continue to move lower on Tuesday and oil prices are continuing to also decline over the course of the session. Central banks are likely to maybe ride to the rescue over the course of the next week. We have the #ECB meeting today, the #BOJ, #Fed meeting and #RBNZ meetings next week.

It’s going to be a difficult needle for them at the #ECB to thread, given the disappointment that we saw at the December meeting. We expect Mario Draghi to try and emphasize to markets that the March meeting is live. Although, we’re not expecting any substantive policy movement today, in fact sources have said that we shouldn’t expect anything over the course of this meeting.

Given the fact that there’s no new economic projections until the March meeting, it’s purely going to be the Draghi charter that moves the #Euro over the course of the session. We look for increased vigilance and certainly the words around their monitoring of the inflation outlook in the #Eurozone to change, and that as I’ve said may take the single currency lower by the end of the session.

Elsewhere, the initial jobless claims from the U.S. is billed for 13:30 BST and it is likely to continue to show tightness in the U.S. labor market.

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