Central Bankers Rule The Week

22 January, 2015

Simon Eastman

Wednesday was much anticipated as the start of the weeks eco stats having been a fairly quiet start to the week which included a public holiday stateside to celebrate Martin Luther King day.

We kicked off with the UK unemployment figures which came out positively, showing the lowest unemployment rate in more than six years as the figure fell by 58,000 to 1.91 million or a percentage figure of 5.8 percent, compared to the forecast 5.9 percent from 6 percent last month. Average earnings also came down, showing earnings outstripping inflation signalling good news for the average UK worker. The good unemployment figures were overshadowed though by the minutes from the latest MPC policy meeting earlier in the month. This showed a change to the voting for interest rate hikes by the Bank of England, whereby the 2 who had been voting for hikes decided to join the rest with a no-vote and a statement released stated they would not consider a hike until 2016 at the earliest. This resulted in sterling weakness across the board as markets priced out the chances of a hikes this year.

Come lunchtime sterling had settled ahead of the US open until comments reported from the ECB hit the headlines. Breaking news emerged the ECB were planning a QE program of €50 billion each month of 2015, which is more spread out than investors were anticipating and sent the euro weaker, most notably against the greenback which spiked a cent but quickly retracted and similar spikes and troughs were seen on sterling/euro. We will now await the actual ECB announcement due at 12.45 today followed by a press conference a short time afterwards. If the headlines yesterday were false, expect to see massive volatility!

Slightly coming out under the radar was the Bank of Canada’s crafty interest rate cut at 3pm. The cut sent the Loonie crashing as its value melted by a massive 5 cents as sterling reached a near 5 year high! To anyone looking to buy C$ 250,000 would have been £3500 better off following the announcement – not a bad saving! Of course, with uncertainty over whether the BoC was going to cut, it would’ve taken nerves of steel (or perhaps some lucky timing) to have gambled over the decision.

So onto Thursday and it really is all about the ECB policy meeting and press conference. There are some low key releases elsewhere including UK CBI industrial trends survey and US jobless claims, house price index and the EU consumer confidence survey. If you have euros to buy, it could be a savvy decision to not risk the announcement which is heavily priced in from yesterday and take advantage this morning. Contact the CI team now to discuss the various options available.