• Euro appreciates on comments from Nowotny
• RBNZ cuts interest rates by 25 bps
• UK rate decision the focus this afternoon
Yesterday the euro appreciated as ECB’s Nowotny contested that the decision taken by the ECB last week was the right one. He went on to say that market expectations ahead of the ECB meeting were absurd and there was a massive failure of market analysts and that he didn’t believe the European central bank communications policy gave a false signal. Traders had priced in an aggressive stimulus package ahead of last week's meeting and these positions are currently being unwound. In light of the new rhetoric this process is likely to continue and the Euro should find some support.
US data was largely ignored yesterday as traders looked ahead to next week's interest rate decision from the Federal Reserve. It is almost certain the US will raise rates on the 16th, however the policy statement accompanying any move will be scrutinised for clues as to what the future path of interest rates will be for the next year. Most are anticipating a dovish message as the Fed looks to temper fears of an aggressive tightening cycle. The dollar has weakened on the back of these fears while we await confirmation.
Overnight the Australian dollar was boosted by another month of spectacular job data. The Australian unemployment rate fell to 5.8% versus an expectation of 6% as the Australian economy added 71,400 jobs in November blowing away forecasts for a decline of 10,400. All this is good news for the Australian economy and saw the dollar gain in the news.
Elsewhere, the RBNZ cut the cash rate by -25bps to 2.5% as most forecasters expected, adding that a higher New Zealand dollar is unhelpful, and a further drop would be appropriate. RBNZ governor Graeme Wheeler said in the accompanying statement that monetary policy needs to be accommodative to help ensure that future average inflation settles near the middle of the target range, however signalled a neutral bias from here out. In a volatile trading session the Kiwi has ended up strengthening significantly.
Looking ahead, all attention will be focused on the BOE rate announcement and meeting minutes at 12:00pm. While there is unlikely to be any change in policy the minutes may well shed some light on the BOE thoughts and if the recent strength of Sterling has in any way impacted their decision making.