It’s all about the Central Banks

Both European and UK Central Bank announcements this lunchtime are being anticipated by the markets for any change in attitude from the norm. As usual, we will obtain more from the ECB than from the MPC given the immediacy of the formers press conference as opposed to the 2-week delay for the minutes from the UK committee. Neither are expected to make any change in rate or size and nature of QE however, given current activity from the ECB to make tighter short term yields, the market will be anticipating the Central Bank Governor to make some comment on the extraction of stimulus. He is also expected to mention the recent pick up in Eurozone economic activity and likely congratulate the peripheral states’ performance to oppose the enormous fiscal deficits that at present thrive. The million dollar question is whether he will mention the rise in the value of the Euro – we have seen the rate versus the Dollar increase from 1.2900, at the time of the last ECB meeting, up to 1.4000 now and from 106 versus the Yen to just under 116 in the same time period. Against Sterling, the Euro has appreciated from 1.2175 to today’s rate of 1.1400. This huge increase will clearly have an effect of the Eurozone’s overseas competitiveness and unless we witness a sizeable weakening of the Euro, then the German led Eurozone resurgence might be very short lived indeed.

The MPC minutes, when released, will probably show a now 3-way split in opinion for the size of and future policy for The Asset Purchase Scheme, but we will need to wait until the 20th October for confirmation of that.

Today we have already seen worrying Halifax housing data and about as expected UK industrial production numbers. A weakening of Sterling on the former was reversed on the latter though there has been no real appreciation seen against the Euro. The German industrial production numbers for August, due at 11.00 are expected to indicated growth but given that these are backward looking (data for August) they will not reflect pressure on sales from the recent surge in the Euro’s value.

Yesterday’s US ADP vacancies numbers were weaker than had been expected but are unlikely to change people’s expectations for the Private Payrolls figure tomorrow given that the ADP survey has consistently under-performed over recent months. The non-farm payrolls number is expected to come in at about -20K but this will include about 120K short-term government related lay offs (census workers mostly). The rest of today is largely data-free so the main questions are whether the market will push to get Euro/Dollar up through 1.4000 and will Sterling/usd follow towards 1.6000 and also what the Japanese authorities decide to do about the level of USD/Yen…. We are now well below the level on 15th Sept at which the BOJ intervened to try and suppress the value of the Yen.

Gold and the Aussie Dollar reflects continued US Dollar weakness with new highs touched by both. The Aussie is a whisker away from parity, supported by both the advance in the gold price and the expectation of higher Australian interest rates.
Report by Phil Mchugh

Tags:  bank exchange rates, currency converter, exchange rate for today, interbank rate