It's that time of the month again, folks! Nope, Cyclopip is not yet due for his monthly bath. The BOE and ECB rate decisions are upon us! Read up on what you can expect from two of the world's most influential central banks in this edition of Piponomics!
Bank of England: Thursday, 1:00 pm GMT
What happened last month?
As expected, our chaps over at the BOE decided to keep rates unchanged at 0.50%. Not only that, but they also didn't touch their purchase facility, which remained at 375 billion GBP.
What market junkies did not expect though, was that the Monetary Policy Committee (MPC) showed reluctance over further easing. Both BOE Governor Mervyn King and Deputy Governor Paul Tucker felt that the impact of the bank's loose monetary policy is reaching its limit. Consequently, this sent the pound flying high like a G6 on the charts! GBP/USD rose over 50 pips to test the major 1.6000 handle within an hour after the statement.
What can we expect from the English central bankers this time around?
Folks around the FX hood widely expect King and his men to sit on the sidelines. If you remember, the BOE meeting minutes revealed that policymakers squabbled over whether or not it's high time for the economy to get another dose of stimulus. While there were those who argued that the economy isn't expanding fast enough, there were also others who already saw rising inflation as a threat.
This humble old man thinks that the BOE won't make any changes to its monetary policy until we see more signs from the economy.
European Central Bank: Thursday, 1:45 pm GMT
What happened last month?
Nothing! Well, nothing game-changing, at least. The ECB only kept its interest rates steady at 0.75% and reduced the rate that it's paying banks for overnight deposits to 0.00%.
What got the investors' attention was the ECB's expectations of a weak economy in the short-term as well as the persistence of its downside risks. In another speech, he also commended Spain for putting up the effort to help solve its debt problems.
Fortunately for the euro bulls, the lack of a rate cut boosted appetite for the euro. EUR/USD shot up by almost 50 pips in the first hour after the release and proceeded to make new intraday highs during the U.S. session.
What can we expect from Super Mario and his gang in December?
Like last month, market geeks aren't holding their breath for an interest rate cut. Instead, many believe that the ECB would most likely keep its rates at 0.75% and downgrade its economic growth forecasts.
See, analysts believe that the central bank's forecasts of a 0.4% contraction in 2012 and 0.5% growth in 2013 are still overly optimistic and are in need of a downgrade.
Not surprisingly, Super Mario is also expected to say something about the recent developments in Spain and Greece. Other forex ninjas say that the ECB head honcho is likely to commend the Spanish and Greek governments for their efforts. More importantly, Draghi could also stress that the central bank has done its part in reining in the region's debt and that it is now up to the euro zone governments to successfully pull themselves out if the crisis.
So while the ECB might not exactly touch it's interest rates, we could see volatility in the euro pairs' price action when Draghi takes center stage. Just make sure that your trading plan considers different scenarios, aight? Who knows, maybe a game changer is just around the corner!
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