Forex Analysis: Euro at Risk on ECB Rates Outlook, Pound May Rise

The Euro may fall as the ECB hints at rate cuts ahead amid deepening recession while the British Pound finds support as the BOE opts not to expand QE.

Talking Points

Pound Follow-Through May be Limited as BOE Withholds QE Expansion
Euro Vulnerable if ECB Hints Rate Cuts Ahead Amid Deepening Recession
NZ Dollar Sold as Unemployment Rate Hits 13-Yr High in Third Quarter

Interest rate decisions from the Bank of England (BOE) and the European Central Bank (ECB) headline the calendar in European hours. June’s expansion of BOE asset purchases runs its course this month and investors expect the central bank will opt not to top-up the program this time around. A backdrop of improving economic data since October’s sit-down – particularly the sharp upside surprise on third-quarter GDP figures – seems to reinforce the likelihood of such a scenario. This may offer near-term support for the British Pound, although follow-though may be limited considering traders appear to have priced in a status-quo decision already (according to data compiled by Credit Suisse).

Meanwhile, the abysmal run of Eurozone PMI data over recent months will have markets pining for growth-supportive measures from the ECB. Traders’ priced-in expectations as well as economists’ baseline forecasts point away from action this time around however. That will shift the spotlight to commentary from ECB President Mario Draghi at a press conference following the meeting. Clues about forthcoming stimulus measures are likely to weigh on the Euro, whereas their absence may prove supportive. Needless to say, a surprise rate cut this time around will likely prove particularly detrimental for the single currency.

The New Zealand Dollar underperformed in overnight trade after a disappointing set of third-quarter Employment figures. The report showed the economy unexpectedly lost jobs in the three months through September, with overall employment down 0.4 percent from the prior quarter. The jobless rate shot higher to 7.3 percent, the highest in over 13 years. Forex traders took the outcome mean the RBNZ may be more likely to cut interest rates, eroding yield-based support for the Kiwi and sending the currency lower.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

21:45

NZD

Unemployment Rate (3Q)

7.3%

6.7%

6.8%

21:45

NZD

Employment Change (QoQ) (3Q)

-0.4%

0.3%

-0.1%

21:45

NZD

Employment Change (YoY) (3Q)

0.0%

0.8%

0.6%

21:45

NZD

Participation Rate (QoQ) (3Q)

68.4%