- European Central Bank interest rate announcement this afternoon
- Bank of Canada leaves rates unchanged
By Mike Mistretta
Sterling strengthens on good GDP result
Sterling rallied yesterday after better than expect Gross Domestic Product (GDP) numbers. Growth was reported at 0.4% for the third quarter surpassing expectations of a 0.3% increase. It added more fuel to the fire for an expected interest rate hike from the Bank of England (BoE) next week. There were some thoughts that the UK economy was not strong enough to support a rate increase to 0.5% which would take us back pre-Brexit levels, however the strong GDP data, combined with the BoE needing to show their credibility, means that an interest rate hike next Thursday is very likely.
The gains were stalled somewhat against the US Dollar in the afternoon, due to much better than expected durable goods orders and new home sales data in the US. In reaction, Barclays raised their US GDP estimate for Q3 from 2.3 percent to 2.5. The US Dollar rallied across the board, although gains may be limited due to uncertainty over President Trump’s overhaul of the US tax system.
Bank of Canada keeps interest rates the same
Keeping to North America, the Bank of Canada (BoC) kept rates unchanged at 1 percent. The central bank pledged caution on future rate hikes, even after it lifted its GDP forecast for 2017 and 2018. Some analysts had hoped the BoC would signal further rate hikes, but the tone taken was more dovish than previous meetings – disappointing progress with North America Free Trade Agreement (NAFTA) negotiations was seen as the main cause for this shift – as a result, the Canadian Dollar sold off. Talking afterwards, though, central bank Governor Poloz said that every meeting should be considered a live meeting.
All eyes on European Central Bank
The main event for today – and in fact the whole week – is the European Central Bank (ECB) rate announcement. The focus is on whether or not they will announce tapering of their asset purchase programme and if they do, to what degree. Traders believe they will announce the reduction of stimulus from 60 Billion Euros per month to €30 Billion. If we see an announcement that is considered dovish, for example, keeping purchases above €30 Billion and extending the duration of the programme, we may see the Euro sell off a bit. Conversely, if they do announce sufficient tapering, the Euro should rally. Either way, we have a high chance of volatility surrounding the announcement this afternoon at 12.45 UK time.
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