ECB Policy Decision Today – 10th March 2016
ECB Policy Decision Today
Forecasting movements in exchange rates has always been and always will be incredibly difficult. Forecasting the results of economic data releases is marginally easier and yesterday was one of those days when analysts got it right and they got it wrong.
The forecasters correctly anticipated monthly increases in UK manufacturing and industrial production; manufacturing output was up by a monthly 0.7%, while the broader industrial production measure was up by 0.3% and would have been higher but was held back by falling oil and gas prices. Astonished investors sent Sterling more than half a cent higher before realising that, hang on, everyone knows Sterling is a currency to sell.
Analysts were correct once again predicting the Bank of Canada would keep its benchmark interest rate steady at 0.5%, implying no change for the Canadian Dollar. But even there lurked confusion. Shortly after the BoC announced its decision the price of oil moved higher, taking the Canadian Dollar up as well. There was no reaction whatsoever to the BoC’s announcement that “the current stance of monetary policy is appropriate, and the target for interest rates remains at 0.5%”.
Analysts failed, however, to forecast the Reserve Bank of New Zealand’s interest rate cut. Of the 17 economists polled by Bloomberg on Tuesday, all but two reckoned the central bank would keep its Official Cash Rate unchanged at 2.5%. Surprise, surprise. The RBNZ didn’t and cut by an unexpected 0.25% and the Kiwi suffered a five-cent loss straight away however as London opens, it has recovered half of those losses.
Amongst all this the best performing currency was the South African Rand, which is having a particularly bumpy ride either topping the currency leaderboard or coming last in the last 10 days. In that 10 day period the South African Rand has strengthened by 0.6%, beaten only by the Aussie Dollars 1.8% gain.
The only game in town today is the European Central Bank’s monetary policy decision where analysts expect the bank to announce a further cut to its already-negative deposit rate and an increase in the scale of its asset purchases. They are, however, braced for disappointment. In early December investors had been expecting a significant relaxation of ECB monetary policy. What they actually got was a cut in the deposit rate from -0.2% to -0.3% and not much else. The result was a 2% jump in the value of the Euro. The ECB has hinted at a rather more dramatic easing move today but there is inevitably scepticism after December’s disappointment.
Another anticlimax would be likely to send the Euro higher once again but, as we know, forecasting isn’t easy so be aware that a decisive policy would likely send the Euro lower.