When and what time will the BOE and ECB give their rate decisions?
On Thursday, March 7, 2013, the BOE will give its rate statement at 12:00 pm GMT. Then after 45 minutes at 12:45, the ECB will take its turn to announce its monetary policy decision.
What was said last time?
The actual BOE rate statement was a big snoozer last February 7, 2013! Markets simply got what they were expecting from the BOE. Interest rates remained at 0.50% and no increase in its asset purchases from 375 billion GBP.
We did get a big surprise from the minutes of the said meeting though. The report showed that more MPC members are actually in favor of more QE. To top it off, it was none other than the BOE head honcho Mervyn King who switched to the doves’ side.
As for the ECB, Mario Draghi sent the euro tumbling down the charts. The central bank kept interest rates steady at 0.75% but his remarks about the possibility of further easing hit the euro hard!
What has happened since the last rate statements?
For one we’ve gotten a boat load of disappointing data from both the euro zone and the U.K. Inflation in the euro zone is falling while the level of unemployment is rising. Meanwhile, the U.K. reported negative retail sales for January and statistics show that the manufacturing sector returned to contraction.
Italy’s political scene has also made it back to the spotlight with the recent elections being concluded without any party securing the majority. Oh, and don’t forget that the U.K. lost its triple A credit rating a couple of weeks ago.
What are the expectations?
Almost no one is expecting a rate cut from either central bank. The BOE’s asset purchase facility is also eyed to remain steady at 375 billion GBP while the ECB isn’t expected to issue any additional LTRO loans.
However, most market participants are anticipating a slew of dovish remarks from both the ECB and the BOE.
Draghi and his men might want to address the existing downside risks in the euro zone as the region tries to shift its focus from financial concerns to economic growth. Meanwhile, BOE Governor King and the rest of the MPC members could hint at further stimulus down the line. After all, keeping its asset purchases unchanged for now could increase the likelihood that the BOE will implement more easing in their next rate statement.
How does the market usually react?
In its February rate statement, ECB head Draghi’s comments against the euro’s appreciation hit the euro hard and sent EUR/USD to its 2-week lows.
As for the BOE, incoming head Mark Carney caused quite a stir for pound pairs as he didn’t sound as dovish as most traders expected. This sparked a 100-pip rally for cable but most of the gains were erased later on.
Do you really want to trade this?
Of course, as I always say, nothing is set in stone and anything can happen in the forex market. There’s always the chance that the actual event can turn out differently from what everyone and his momma are expecting.
In fact, some contrarians are suggesting that the ECB and BOE might take a more upbeat tone this time around. After all, the euro zone did print some stronger-than-expected data, particularly in Germany’s business and consumer sector, which could lead Draghi to adopt a more neutral tone in his speech.
As for the BOE, incoming Governor Mark Carney could once again take center stage and insist that the current monetary policies are appropriate and that further easing isn’t necessary for now. Since Governor Mervyn King is just a few months away from stepping down, he might decide to just sit on his hands in the meantime and refrain from making any drastic remarks on the British economy.