Forex News – Busy week with ECB, Bank of England and US employment report
February 3, 2014 2:27 pm
The week ahead is expected to be very busy, as many events will take place that are expected to have a significant impact on the foreign exchange market. By the end of the week, more will be known on the outlook for monetary policy in the Eurozone and the UK, on the outlook for manufacturing and services in the US and also on the employment situation in the world’s biggest economy.
Following the previous week’s weaker-than-expected Eurozone flash inflation figures for January, the ECB’s reaction will be key. The ECB Governing Council will meet on Thursday in Frankfurt. The majority of economists expect the ECB to keep its key refinancing rate at 0.25% and maybe give hints of concrete steps it could take if the situation deteriorates. Although the ECB might surprise again as it did back in November after a weak October inflation reading, there seems to be little consensus within the Governing Council for bolder action. Unsterilized bond purchases, a negative deposit rate or additional long-term loans to banks are some possible tools, but there are strongly dissenting voices for such actions.
On Thursday as well, the decision of the Bank of England will be announced. The BoE’s announcement will be scrutinized for signs that the UK’s central bank has decided to abandon or at least reform its forward guidance. The Bank thought that the 7% unemployment threshold was an ambitious target when it was set in the summer, as the rate stood at 7.8% in May. However, the latest data has shown that unemployment surprisingly dropped to 7.1% during October. As the trend of the faster-than-expected drop in unemployment became apparent in recent months, the Bank started to point out that the 7% threshold did not represent a trigger for higher rates. With unemployment dropping to 7.1% compared to the 7% target and the Bank in no mood to raise interest rates anytime soon, some new guiding posts are appropriate.
In the United States, following the Fed’s decision to carry on with tapering the previous week, three important pieces of data will give some very useful information about the country’s economic health. First of all, the ISM manufacturing survey for January on Monday will show how that sector is doing, followed by the ISM non-manufacturing survey on Wednesday. The employment, prices and new orders components of these two surveys will be closely looked at. On Friday, the week’s most important report will be released; the January employment report. Nonfarm payrolls are expected to have grown by 184 thousand in January, while the unemployment rate is expected to have held at 6.7%. For all three reports there is maybe some downside risk from some extreme weather that was witnessed during January in the United States, although the disruption was probably not great in retrospect. Following December’s weaker-than-expected nonfarm payrolls of 74 thousand, the market may not be as forgiving if the report surprises like this on the downside a second time.
To sum up, it will be a very interesting week for forex majors, while in the background some emerging markets could continue to face problems and as most of China will be on holiday for the New Lunar Year.
The week ahead is expected to be very busy, as many events will take place that are expected to have a significant impact on the foreign exchange market. By the end of the week, more will be known on the outlook for monetary policy in the Eurozone and the UK, on the outlook for manufacturing and services in the US and also on the employment situation in the world’s biggest economy.
Following the previous week’s weaker-than-expected Eurozone flash inflation figures for January, the ECB’s reaction will be key. The ECB Governing Council will meet on Thursday in Frankfurt. The majority of economists expect the ECB to keep its key refinancing rate at 0.25% and maybe give hints of concrete steps it could take if the situation deteriorates. Although the ECB might surprise again as it did back in November after a weak October inflation reading, there seems to be little consensus within the Governing Council for bolder action. Unsterilized bond purchases, a negative deposit rate or additional long-term loans to banks are some possible tools, but there are strongly dissenting voices for such actions.
On Thursday as well, the decision of the Bank of England will be announced. The BoE’s announcement will be scrutinized for signs that the UK’s central bank has decided to abandon or at least reform its forward guidance. The Bank thought that the 7% unemployment threshold was an ambitious target when it was set in the summer, as the rate stood at 7.8% in May. However, the latest data has shown that unemployment surprisingly dropped to 7.1% during October. As the trend of the faster-than-expected drop in unemployment became apparent in recent months, the Bank started to point out that the 7% threshold did not represent a trigger for higher rates. With unemployment dropping to 7.1% compared to the 7% target and the Bank in no mood to raise interest rates anytime soon, some new guiding posts are appropriate.
In the United States, following the Fed’s decision to carry on with tapering the previous week, three important pieces of data will give some very useful information about the country’s economic health. First of all, the ISM manufacturing survey for January on Monday will show how that sector is doing, followed by the ISM non-manufacturing survey on Wednesday. The employment, prices and new orders components of these two surveys will be closely looked at. On Friday, the week’s most important report will be released; the January employment report. Nonfarm payrolls are expected to have grown by 184 thousand in January, while the unemployment rate is expected to have held at 6.7%. For all three reports there is maybe some downside risk from some extreme weather that was witnessed during January in the United States, although the disruption was probably not great in retrospect. Following December’s weaker-than-expected nonfarm payrolls of 74 thousand, the market may not be as forgiving if the report surprises like this on the downside a second time.
To sum up, it will be a very interesting week for forex majors, while in the background some emerging markets could continue to face problems and as most of China will be on holiday for the New Lunar Year.
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