LONDON — Investors traded cautiously ahead of policy meetings at the European Central Bank (ECB) and Bank of England (BoE) on Thursday, tending to favour the euro and pound over the dollar and holding back on major equities purchases.
Neither bank was expected to change their interest rates, but markets were on alert for any signs of future moves in monetary stimulus or shifts in the economic outlook.
The panregional FTSEurofirst 300 stock index sagged 0.3% as all the major bourses dipped, while benchmark German bunds were virtually unchanged.
In currencies, both the euro and sterling were able to claw back some of the ground they have conceded to the dollar in recent days. The latter has been pushed high by strong US data.
The pound looked the firmer of the two gainers at $1.6469. The euro was up 0.3% at $1.3600, but, with eurozone inflation bumping along at very low levels, HSBC FX strategist David Bloom expected the ECB to reiterate it remained on guard — a move that could weaken the currency.
"I would say at least some dovish rhetoric from the ECB, but from the Bank of England we are not expecting much at all. I think this mini dollar-rally, on the view the (Federal Reserve) is going to taper (the amount it pushes out as stimulus) and the ECB is going to loosen (eventually), is going to stay with the market."
ECB president Mario Draghi has been at pains to stress in recent months that the bank is prepared to ease its record low interest rates even further below 0.25% and test out other, more unconventional, policy options if necessary.
But this year has started strongly for many parts of the eurozone. Germany’s economy is gaining strength and bailed-out Ireland has seen a strong return to borrowing markets, which in turn has lifted Portugal and other "periphery" members.
Britain looks to be improving even faster. Some traders suggested the BoE could release one of its rare post-meeting statements to acknowledge the progress, though Mr Bloom doubted it would.
The BoE makes its policy announcement at 12pm GMT, with the ECB due at 12.45pm followed by a news conference at 1.30pm GMT.
Asia wobbles
In Asia, shares once again wavered after a lacklustre performance on Wall Street overnight following the release of Federal Reserve minutes and ahead of the US nonfarm payrolls due on Friday.
At the same time, market reaction was muted to a slowdown in China’s annual consumer inflation in December, which decelerated more than had been expected.
MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.4% after snapping a five-day losing streak on Wednesday. Despite a weaker yen, Japan’s Nikkei average shed 1.5%. Among commodities, gold was a tad higher at $1,227.05 an ounce, steadying after two consecutive days of losses and touching a one-week low on Wednesday.
US crude futures advanced 0.3% to $92.62 a barrel, rebounding from a five-week low hit overnight after data showed a large build in stockpiles at the US benchmark delivery point.
Brent crude also gained 0.3%, to $107.52 a barrel, while copper slipped 0.93% to $7,275.50 on its way to a two-week low.
"I’m a bear on copper prices — I think $7,000 is a more sustainable level," UOB Kay Hian senior commodities analyst Helen Lau said in Hong Kong.
"The dollar will continue to strengthen because of US tapering (stimulus withdrawal), and China’s economic growth is slowing down."
