Strong labour data boosts US Dollar, ECB to meet today

Sterling fell against the Dollar for another day, with the House of Lords vote earlier in the week continuing to dampen sentiment towards the Pound. Elsewhere, the Canadian Dollar fell to its lowest level so far this year against the US Dollar, along with a host of emerging market currencies, after a decline in oil prices on Wednesday. The Turkish Lira was one of the worst performers, falling by over one percent after a speech from the Governor of Turkey’s central bank.

Currency market action today will be dominated by this afternoon’s European Central Bank meeting. The central bank will be announcing its interest rate decision at 12:45pm followed by President of the ECB Mario Draghi’s press conference at 13:30pm. We expect no change in policy from the central bank with interest rates and the QE programme to remain unchanged despite the recent uptick in both growth and inflation.

Mario Draghi is instead likely to announce an upward revision in its semi-annual inflation forecast. The reaction in the Euro will be driven almost entirely by the tone of Draghi’s press conference. While the EUR/USD rate could spike on the announcement of any upgraded economic forecasts, Draghi could talk down the value of the Euro. A failure of Draghi to alter the ECB’s easing bias could lead to renewed weakness in the single currency today.

Major currencies in detail

GBP

Sterling slumped by 0.3% against the Dollar on Wednesday on growing uncertainty surrounding Britain’s Brexit process.

Chancellor Philip Hammond’s budget yesterday provided little in terms of market moving headlines. The government did, however, significantly upgrade its growth forecast for the coming year from 1.4% to 2%. Inflation in Britain is also now expected to rise to 2.3% in 2017-18 before falling to 2.3% in 2018-19.

Housing data this morning from RICS is the only economic release of note on Thursday. Sterling traders will instead await Friday’s industrial and manufacturing production figures.

EUR

The Euro was range bound for another day as markets await this afternoon’s European Central Bank meeting. The single currency ended 0.2% lower against the Dollar.

The release of yesterday’s industrial production data out of Germany proved to be a fairly low key event. Production in Germany rose by 2.8% in January, slightly higher than the 2.7% consensus. Encouragingly, data for December was also revised upwards sharply from -3% to 2.4%.

With no economic data releases in the Eurozone today, traders will be solely focused on this afternoon’s European Central Bank meeting. With the ECB still adverse to a stronger currency we could see a fairly dovish statement to compensate for any upgraded growth forecasts. However, barring any major surprises, we expect today’s meeting to be relatively low key compared to recent standards.

USD

The Dollar briefly rallied following yesterday’s labour data, although retraced its gains to end 0.3% higher against its major peers.

Expectations for an interest rate hike by the Federal Reserve in March continued to grow yesterday, with Fed funds futures now fully pricing in the possibility that policymakers will raise rates at the 15 March meeting. Financial markets are also now pricing in around a 25% chance of at least four interest rate hikes this year, considerably higher than the two hikes pricing in a matter of a few weeks ago.

Economic data releases are mostly second tier in the US today. The Dollar will largely be driven by this afternoon’s ECB meeting and expectations for Friday’s nonfarm payrolls report.