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October 2017

European Central Bank interest rate announcement this afternoon

Published: Thursday 26 October 2017

  • 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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Storm in a teacup?

Mike goes to the local pub and sees Sister Mary from the local Convent standing outside.

“Don’t go inside, Michael Connor,” she implores, “I know your mother well and she knows that alcohol is the work of the devil and it can only lead to paths you would not like to tread.”

“Sister Mary,” says Mike. “Have you ever tasted alcohol? It seems to me that, before you label something as evil, you should at least try it to see what you are talking about.”

“You make a very good point,” says Sister Mary. “I will try it, but I can’t be seen going into a pub. I’m sure you understand. If you could put a little whiskey in a teacup and bring it out to me, I will try it and then we can discuss it.”

So, Mike goes into the pub and asks the landlord for a small whiskey in a teacup. The landlord doesn’t question him, but puts the cup under the optics and pours a small whiskey as asked.

As he hands it to Mike, he leans over the bar and whispers, “I’m getting a little low on teacups, so could you please ask Sister Mary to send some back in?”

Today's major economic releases

Market BST Data/Event Previous Expected
EUR 09:00 EU: M3 Money Supply 5.0% 5.0%
EUR 09:00 EU: Private Loans 2.7% 2.8%
GBP 11:00 UK: Confederation of British Industry Realized Sales 42 14
EUR 12:45 European Central Bank Minimum Bid Rate  0.00% 0.00%
EUR 13:30 European Central Bank Press Conference    
USD 13:30 US: Unemployment Claims 222k 235k
USD 13:30 US: Goods Trade Balance -62.9b -63.8b
USD 15:00 US: Pending Home Sales -2.6% 0.2%