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Bank of Canada maintains interest rates and proceeds with caution

Published: Thursday 08 March 2018

  • Pound pressure continues
  • European Central Bank (ECB) the big news today
​​By Mike Mistretta
Bank of Canada maintains interest rates and proceeds with caution

Late yesterday afternoon the Bank of Canada decided to leave rates unchanged at 1.25%. The accompanying statement was more cautious than anticipated. Trade developments were cited as an important and growing source of uncertainty. Higher rates are likely to be warranted over time, but some continued policy accommodation will likely be needed to keep inflation on target. Analysts have a 25 basis point hike pencilled in for the April 18th meeting and the recent bout of currency weakness has provided some support to this view. The Sterling Canadian Dollar rate got as high as 1.80 yesterday - the highest since June 2016.

The main driver for Canadian Dollar at the moment is the North American Free Trade Agreement (NAFTA) trade talks and the possible tariffs on aluminium and steel by the US, of which Canada is its largest supplier. In fact reports suggest US President Trump is seeking to sign a Presidential proclamation today.

However, the Canadian Dollar did have some relief off the back of the news that Canada and Mexico may temporarily be excluded from the tariffs. But whether there will be permanent exclusion will depend on NAFTA negotiations.

Pound pressure continues

Sterling is still under pressure, as it was noted that the EU’s draft document outlining trade in services falls short of UK desires. The draft states that the UK will be treated as a third country and will not be given a special treatment, providing further evidence that there is still a long way to go before common ground is reached. The Pound will struggle to strengthen meaningfully in this environment.

European Central Bank (ECB) the big news today

The main event today will be the ECB rate decision. There are expectations that they will remove the quantitative easing (QE) flexibility bias, specifically the phrase: “we stand ready to increase the asset purchase program in terms of size and/or duration if the outlook turns less favourable”.  Weidmann, the man mostly likely to be the next head of the ECB, is openly critical of the central bank and Mario Draghi, as he says that the ECB should be more specific about the timing of the exit and the end of the QE. Therefore if the “hawks” have their way and there is a removal of that QE flexibility, then the Euro could initially spike higher. It is very likely that we could face volatile conditions and a knee-jerk reaction from the Euro, but be aware that Mr Draghi will add colour to the statement at the proceeding press conference.  Markets will be looking at the detail.

In addition, the Swiss will release unemployment rate data; Germany will release factory orders. Canada will release housing starts, their new housing price index and building permits data. The US will release jobless claims as usual on Thursday.

Went to the corner shop – bought 4 corners.

A sandwich walks into a bar. The barman says, “Sorry, we don’t serve food in here.”

Slept like a log last night. Woke up in the fireplace.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 12:45 EU: Minimum Bid Rate 0.00% 0.00%
CAD 13:30 Canada: Building Permits 4.8% -0.3%
CAD 13:30 Canada: New Housing Price Index 0.0% 0.1%
EUR 13:30 European Central Bank Press Conference    
USD 13:30 US: Unemployment Claims 210k 220k

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