A lot is expected from the ECB today, will they deliver? 3rd December 2015

Investors waiting for guidance on US interest rates and further QE from the Eurozone were left waiting once again yesterday. In the Eurozone the consumer price index put inflation at a provisional 0.1% which was lower than forecast and entirely deserving of the European Central Bank Governing Council doing whatever it takes today. In the United States the Federal Reserve chairperson, Janet Yellen, said once again that she was “looking forward” to taking interest rates higher.

It might have been reasonable to expect the Euro to weaken against the US Dollar as a result of those divergent rate outlooks however, so deeply are they ingrained in the culture that investors no longer see them as remarkable. The US Dollar did indeed strengthen against the Euro but only to the tune of quarter of a cent.

For a second successive day, Sterling began to head lower as London opened. It went on to lose ground against just about everything, falling by an average of -1.1% against the other dozen most actively-traded currencies. The construction sector purchasing managers’ index would have contributed to the Sterling sell-off as it came in at a seven-month low of 55.3, but Sterling was already sliding before that number came out. With Janet Yellen “looking forward” GBP v USD went below the psychological barrier at $1.50 to hit a fresh 8-month low at 1.4894.

Today brings the second major round of PMIs, this time for the services sector. It also brings another appearance by the Fed chairperson Janet Yellen and the figures for Euroland retail sales in October. Overshadowing those are the ECB rate announcement at 12:45 and Mario Draghi’s press conference 45 minutes later.

Great things are expected of the ECB this afternoon. A cut in the bank’s deposit rate is on the cards, even though it is already negative at -0.2%. Investors also expect the asset purchase programme to be increased and extended beyond the €60bn per month which is scheduled to end next September.

Draghi and his team are doubtless hoping that their actions will send the Euro lower this afternoon: a weaker currency would help inflation towards its target by making imports more expensive. In the past, similar announcements have achieved just that result. The risk, though, is that the ECB delivers less than investors are expecting. In that case, a Euro rebound would be entirely possible.