No Major Surprises Anticipated By Either ECB Or BoE

Published date: 13/09/2018

We get both the ECB and BoE assessments today at their latest meetings, neither of which is expected to produce any change in policy given their respective factors limiting room to tighten. 

The BoE is first up and has already tightened this year, and the market is expecting little change in rates until late Q1 next year at the earliest when we will be looking forward to the official exit of the EU.  Given Brexit concerns and ongoing talks to thrash out a deal, te MPC will be treading cautiously from here, with last month's 25bp hike seen as contentious at the time, though time will tell whether the economy will weather this.  More recent data suggests a resilient economy, with greater risks on the political front given criticism over Theresa May's handling of the Brexit saga.  This is of little concern to the BoE, focusing in the economy where growth is tentatively picking up - for now - as is wage inflation based on Tuesday's labour report. 

There are no staff projections from this meeting, nor is there a press conference, so expected a muted reaction to the statement, which is likely to be balanced yet cautiously optimistic given the uncertainty ahead. 

Moving on to the ECB, forward guidance has firmly stated that rate normalisation will not be considered until the end of summer next year.  There was some speculation over the growth and inflation projections which are to be released today, but these have been leaked and downward revisions have been 'absorbed' by the market given trade wars have provided some uncertainty here also.  This has been borne out by weaker data out of Germany in particular - due to their heavy reliance on exports.  

There has been some speculation that markets may react to president Draghi's tone at the press conference due later today. The market has been accustomed to the resilient nature of the governing council, who have maintained a steady outlook on the Eurozone economy, though naturally, trade wars have cast a shadow on this as they have for every other central bank the world over. 

GBP is in buoyant mood due to the positive rhetoric over the Brexit talks lately, though we put this down to some position trimming more than a shift to a positive stance.  

EUR/USD and EUR/GBP will be the more active currency pairs, and we continue to see support coming in ahead of 1.1520-40 in the spot rate, while the cross will have to grapple with demand seen just below the 0.8900 mark if we test lower later today.


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