The pound dropped across the board during the overnight trade before Bank of England officials meet at their first monthly meeting of the year. It is broadly expected for the Monetary Policy Committee (MPC) to make no changes, with base interest rate held at 0.5% and the stock of asset purchases left at 275 billion pounds. However, the pressure on the central bank to loosen the policy remains as economic recovery stalls, and we believe that the MPC will announce further expansion of quantitative easing in February. Also scheduled for today are the manufacturing and industrial production data for November. The manufacturing gauge is expected to have fallen by –0.2% after dropping –0.7% in the previous month. In addition, the industrial production is also expected to have fallen by –0.2% from –0.7% in October. Expect for the pound to remain volatile before central bankers meet at noon today.
The euro is higher against its major counterparts this morning before European Central Bank policymakers meet today and announce monetary policy decision. Market participants believe that the central bank officials won’t make any additional steps to support the economic growth at their meeting in Frankfurt today. The bank’s benchmark interest rate sits at 1%, after policymakers cut the interest rate by 0.25% at two previous meetings. However, the single currency sentiment remains negative before Spain and Italy auction 17 billion euro of bonds today. Also scheduled for today is the Eurozone industrial production data, with the expectations for the figures to have shrank by –0.3% in November.
The dollar is higher against the broadly weaker pound, but consolidated slightly versus the euro as investors focus on ECB meeting and bond auctions in Italy and Spain. The greenback enjoyed quite a positive ride in recent days as uncertainty drove the investors into safety of the US currency. Looking ahead to today, Retail sales figures and Monthly Budget Statement for December headline the economic calendar. Expect for the retail sales figures to increase in December as US retailers were supported by holiday discounts.
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