Euro to Falter on Dovish ECB- Pound Looks Higher on BoE Policy

DailyFX

Talking Points

  • Euro: ECB to Hold at 0.75%, Dovish Rhetoric Ahead
  • British Pound: BoE Maintains Current Policy, Meeting Minutes in Focus

Euro: ECB to Hold at 0.75%, Dovish Rhetoric Ahead

The EURUSD slipped to 1.2782 as the gauge for manufacturing and service-based activity in the euro-area contracted at a faster pace during the month of March, while Producer Prices grew an annualized 1.3% in February to mark the slowest pace of growth since March 2010.

Although the European Central Bank (ECB) is widely expected to retain its current policy in April, the Governing Council may show a greater willingness to push the benchmark interest rate to a fresh record-low as the euro-area struggles to return to growth.

Indeed, the press conference with ECB President Mario Draghi takes center stage as market participants weigh the outlook for monetary policy, and the central bank head may sound more dovish this time around as the risk of a prolonged recession threatens the outlook for price stability. As a result, the central bank remains poised to further embark on its easing cycle over the coming months, and the ECB may have little choice but to implement additional non-standard measures as the governments operating under the single currency become increasingly reliant on monetary support.

As the EURUSD comes up against the 1.2750 figure, a breach of the key pivot should open the door for a move back towards the November low (1.2659), and we may see the euro-dollar continue to give back the rebound from the previous year (1.2041) as the downward trend dating back to February continues to take shape.

British Pound: BoE Maintains Current Policy, Meeting Minutes in Focus

The British Pound pared the overnight decline to 1.5032 as the Bank of England (BoE) held the benchmark interest rate at 0.50% while maintaining its asset purchase program at GBP 375B.

Although the Monetary Policy Committee refrained from releasing a policy statement, the neutral policy stance suggests we will see another 6-3 split in the BoE Minutes due out on April 17, and the majority may continue to endorse a wait-and-see approach in 2013 as the central bank sees a slow but sustainable recovery in Britain.

With the headline reading for U.K. holding above the 2% target since November 2009, the MPC may look to boost its credibility for price stability, and we may see a growing number of BoE officials scale back their willingness to further embark on quantitative easing as the Funding for Lending Scheme continues to work its way through the real economy.

As the neutral policy stance held by the BoE props up the British Pound, we may see the make another run at the 50.0% Fibonacci retracement from the 2009 low to high around 1.5260, but the pair may continue to face range-bound prices over the near to medium-term as market participants weigh the outlook for monetary policy.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

EUR

11:45

7:45

European Central Bank Interest Rate Decision

0.75%

0.75%

EUR

11:45

7:45

European Central Bank Deposit Facility Rate

0.00%

0.00%

EUR

12:30

8:30

ECB President Mario Draghi Delivers Policy Statement

USD

12:30

8:30

Initial Jobless Claims (MAR 30)

353K

357K

USD

12:30

8:30

Continuing Claims (MAR 23)

3050K

3050K

USD

12:45

8:45

Fed's Charles Evans, Dennis Lockhart Speak on Monetary

USD

14:30

10:30

Fed Chairman Ben Bernanke Speaks on U.S. Economy

EUR

15:30

11:30

ECB's Benoit Coeure Speaks on Euro Economy

USD

16:30

12:30

Fed's Esther George Speaks on U.S. Economy

USD

21:00

17:00

Fed's Janet Yellen Speaks on U.S. Economy

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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