Talking Points
- Euro: ECB To Cut Rate, Restart Covered-Bond Purchases
- British Pound: Holds Above September 2010 Low, Correction On Tap
Euro: ECB To Cut Rate, Restart Covered-Bond Purchases
Indeed, European Central Bank board member Ewald Nowotny floated the idea of scaling back the benchmark interest rate from 1.50%, but went onto say that the ECB shouldn't ‘expand its toolkit beyond its current scope' during an interview with Market News International. However, there's speculation that the Governing Council may vote on reestablishing its covered-bond purchases at the next policy meeting on October 6, and the central bank may employ a range of tools to shore up the ailing economy as the outlook for growth and inflation deteriorates.
According to Credit Suisse overnight index swaps, market participants are pricing a 50bp rate cut for the following month, and speculation for lower borrowing costs reinforce a bearish outlook for the single-currency as policy makers struggle to restore investor confidence. In turn, we are likely to see the EUR/USD trade heavy over the near-term, and the pair may threaten the rebound from the beginning of the year (1.2873) as fears surrounding the sovereign debt crisis curbs risk-taking behavior. However, as the relative strength index bounces back from oversold territory, the technicals foreshadow a near-term correction on the horizon, and we may see the euro-dollar turn higher before it resumes the sharp selloff carried over from August.
British Pound: BoE Talks Up Speculation For More QE
The British Pound advanced to 1.5542 following the shift in market sentiment, but the near-term correction may fail to gather momentum as the Bank of England talks up speculation for additional monetary support. BoE board member Ben Broadbent said he was ‘reasonably close' to voting for more quantitative easing, and casted a dour outlook for the region as he expects the ‘disinflationary' environment to dampen the recovery. The growing rift within the MPC certainly raises the risk of seeing the Asset Purchase Facility exceed the current GBP 200B target before the end of the year, and the committee may look at additional tools to shore up the economy in an effort to stem the risks for a double-dip recession. Nevertheless, it seems as though we will see the rebound from 1.5327gather pace as the RSI trades back above 30, but we may see the GBP/USD continue to trade heavy over the near-term as the fundamental outlook for the U.K. deteriorates.
More to Follow...
Currency |
GMT |
EDT |
Release |
Expected |
Prior |
|
USD |
14:00 |
10:00 |
New Home Sales (MoM) (AUG) |
-1.0% |
-0.7% | |
USD |
14:00 |
10:00 |
New Home Sales (AUG) |
295K |
298K | |
USD |
14:30 |
10:30 |
Dallas Fed Manufacturing Activity [SEP] |
-8 |
-11.4 |
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