The euro see-sawed ahead of today’s crucial meeting of the European Central Bank, as during the previous day’s US session it rose all the way up to 1.1034 dollars only to reverse direction and head lower to 1.0965 in late Asian trading. It was clear that the euro was waiting to hear from the ECB and its President Mario Draghi before deciding to make a big move.
Regarding the ECB meeting later today, it looks like the market has priced in a 10 basis points cut to the deposit rate, which would take it from -0.3% to -0.4%. The focus will be on whether there will be changes to the Quantitative Easing program; enlarging it say by 10 or 15 billion euros per month from its current monthly level of 60 billion euros, and whether it will make additional securities eligible for purchase. Currently the ECB can only purchase government bonds or bonds of state / municipal entities, and purchases might, for example, be expanded to investment grade corporate debt.
Another central bank surprised the markets during late US trading the previous day. The Reserve Bank of New Zealand unexpectedly cut its key interest rate by 25 basis points to 2.25%, leading to a big selloff of the kiwi. The New Zealand dollar dropped by around a cent and a half against its US counterpart to around 0.6650. The RBNZ Governor Graeme Wheeler said inflation expectations had deteriorated markedly lately, and there were also worries about what was happening in China and the impact on the global economy.
In China itself, inflation at least looked to be holding up well as it surprised on the upside during February with a 2.3% year-on-year rate. Analysts were expecting a 1.9% increase. The announcement appeared to have little impact on markets overall though, as inflation is not a key variable that the market is worried about when it comes to China.
In regional statistics that were announced early in the European session, the German trade surplus for January was little changed from the previous month’s figure at 18.9 billion euros, whereas French industrial output beat estimates by increasing 1.3% month-on-month compared to expectations of a 0.8% rise.
Looking ahead, apart from the ECB announcement and Draghi’s press conference, weekly jobless claims will come out of the US, and capacity utilization and the housing price index will be released in Canada.