…More Calm Before the Storm

So a week ago, I wrote that the US Non-Farm Payrolls was the event “for all the marbles.” That was true, and we have seen the US Dollar continue its rally through this week largely on the back of that news. However, within the span of one hour tomorrow, there are two news events that are likely to have a similarly large impact. Tomorrow two of the largest central banks in the world are announcing their interest rate decisions. The announcements by the Bank of England (7:00 AM EST) and the European Central Bank (7:45 AM EST) come at the end of a week with similar announcements of four major central banks, the other two being the Reserve Bank of Australia and the US Federal Reserve.

While neither is expected to make a move, the possibility exists for both, in particular for the ECB. Though it is possible that they may hike rates (and probably preferable if you ask people such as my colleague John), it is seen as unlikely. Growth throughout the Euro-Zone has been slowing rapidly, with some member nations (e.g. Denmark) already in a recession. As such, a move that could further damage growth rates is seen by most experts as unlikely, regardless of the ECB’s general tendency to focus on inflation.

Beyond the importance of the two decisions, their proximity in time should also prove for extremely volatile markets. The USD has witnessed an excellent rally for several weeks now, and with oil experiencing a coinciding plummet in price, that trend could very well continue. With many now predicting that the USD could break out of its trend with the EUR, a surprise move by the ECB could be just what the doctor ordered to bring back the status quo. However, given the resistance by European leaders to the last rate cut, it is within the realm of the possible that the ECB could witness a near coup d’état should they hike rates again.

Upcoming Figures
EUR German Trade Balance (Jun)
GBP Bank of England Rate Decision
EUR European Central Bank Rate Decision
ECB President Trichet Holds Public Press Conference

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