EN:Euro exchange rate, EUR: ECB decision to be most important for G10 forex markets
The euro dollar exchange rate is 0.149% lower on the day with 1 EUR = 1.4072 USD.
The euro pound exchange rate is 0.032% higher with 1 EUR = 0.8821 GBP.
Today at noon we have the BoE policy decision and at 12:45 we have the ECB's, followed by Trichet's press conference at 1:30pm.
"In the afternoon we have two important speeches in the US: one by Fed Chairman Bernanke at 6pm London time and the other by President Obama at mid-night London time (7pm US time) where he is expected to unveil a $300bn job creation package," says a forex note released by Barclays Capital this afternoon.
Analysts believe that the ECB's decision will be the most important for G10 FX markets. After all the ECB is 'the biggest' support for the EUR these days.
"Our economists expect the ECB to indicate a pause in the tightening cycle, not a cut, with the refi rate staying at 1.5%. But they think the ECB will be very cautious in the way they communicate this. In particular, they expect Trichet to say that the upside risks to inflation have diminished somewhat, and that the outlook for activity is 'tilted to the downside', instead of being balanced," say BarCap.
What is the rates market pricing? EONIA forwards are pricing in a 25bp cut by early 2012.
However, about 15bp of those cuts are priced over the next two months. Also, these 'cuts' have become even more front-loaded over the past week or so.
"This is consistent with the rising bearishness that we have seen for the euro this week, partly as a result of softer activity data in Europe, but also because of significant event risks recently (Italian bond redemptions, regional election in Germany, debates about fiscal packages in Italy and France and a Constitutional Court hearing)" say Barcap.
Clearly, there is more event risk to come.
"In particular, tomorrow is the deadline for the Greek debt exchange and our economists think there are material risks that the exchange may fail.
"So if our economists are right and the ECB indicates only a very slight change in its stance, then markets might be disappointed."
