Euro Looks to GDP Revision to Set the Stage for ECB Rate Decision

The Euro is looking to revised fourth-quarter Eurozone GDP figures to set the stage for tomorrow’s ECB monetary policy announcement.

Talking Points

Euro Looks to 4Q GDP Revision to Set the Stage for ECB Rate Decision
Australian Dollar Higher in Asia as GDP Reinforces On-Hold RBA Bets

Revised fourth-quarter Eurozone GDP figures headline the economic calendar. Economists expect confirmation of initial estimates showing a 0.6 contraction. That would mark the deepest quarterly downturn in nearly four years. A worse-than-expected result may weigh on the Euro as traders speculate the ECB may move to open the door for stimulus to counteract deepening recession and offset de-facto tightening from LTRO repayments.

With that said, the central bank has been reluctant to ease against a backdrop rising sovereign risk, claiming swelling risk premiums priced into bond yields undermine policy transmission. Recent political jitters in Italy have seen yields on the country’s benchmark 10-year note trend higher, hinting Mario Draghi may prefer to remain on the sidelines until a concrete government emerges and funding stress unwinds. An upgrade on the GDP figure could thus drive the single currency higher, giving the bank just enough space to stay put this week.

The Australian Dollar outperformed in overnight trade after fourth-quarter GDP data printed in line with expectations, showing output grew 0.6 percent in the three months through December 2012. The outcome reinforced the wait-and-see approach to monetary policy articulated yesterday by the RBA, helping to scatter near-term interest rate cut expectations. The Swiss Franc underperformed, sliding 0.3 percent on average against its top counterparts. A clear-cut singular catalyst for the selloff has not emerged at this point.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

21:45

NZD

Value of All Buildings s.a.

1.8%

3.0%

9.8%

0:01

GBP

BRC Shop Price Index (YoY)

1.1%

–

0.6%

0:30

AUD

Gross Domestic Product (QoQ)

0.6%

0.7% (R+)

0:30

AUD

Gross Domestic Product (YoY)

3.1%

3.0%

3.1%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

IMPACT