Euro extends its retreat against dollar after ECB kept rates unchanged at 0.75 and slashed 2013 growth forecast. Projection for next year’s growth was revised to range between -0.9% contract and a mere 0.3% growth. That compared to prior forecast of -0.4% to 1.4%. And the revision now suggested that the Eurozone economy would more likely contract than grow. For 2014, ECB expected GDP to grow 0.2% -2.2%. Inflation for 2013, is now projected to be between 1.1% to 2.1%, also revised down from prior 1.3% to 2.5%. ECB president Draghi noted in the press conference, though, “a gradual recovery should start later in 2013”. Meanwhile, Draghi also said that ECB would continue to conduct the main refinancing operations as fixed-rate tender procedures with full allotments at least until July 2013. That is, a six month extension.
BoE, as widely expected, left interest rates unchanged at 0.5% and maintained the size of the asset purchase program at GBP 375b. Focus will turn to meeting minutes to be published on December 19. Data from UK saw visible trade deficit widened to GBP -9.5b in October. Released earlier, Eurozone GDP was unrevised at -0.1% qoq in Q3, confirming double dip recession. German factory orders rose 3.9% mom in October. Swiss CPI dropped more than expected by -0.4% yoy in November while unemployment rate was unchanged at 3.0%.
Yesterday, S&P downgraded Greece’s credit rating to selective default, down from CCC, as the bond buy back program “constitutes the launch of what we consider to be a distressed debt restructuring”. It note that the selective default designation “includes the completion of a distressed exchange offer, whereby one or more financial obligation is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par,” Meanwhile, S&P also noted that it “will likely consider the selective default to be cured and raise the sovereign credit rating on Greece to the ‘CCC’ category” after the buy back program is concluded around December 17.
In US, initial jobless claims dropped to 370k in the week ended December 1. Challenger job cuts jumped 34.4% yoy in November. Yesterday, a few dozen Republicans signed a letter suggesting exploring “all options”, including tax cuts, so as to avoid the fiscal cliff which can put the US economy to recession. Congressman Mike Simpson said he could accept higher rates for married couples earning more than $500K a year together with government spending cut while Kay Granger suggested extending all tax cuts for middle-class earners as “just the right thing to do”. President Obama continued to urge Republicans to accept tax rate hike on the wealthiest class and believed that the problem could be resolved in a week if they do. According to Obama, “among some Republicans over the last several days, I think there’s been some recognition they can accept some rate increases as long as it’s combined with serious entitlement reform and additional spending cut… If we can get the Republican leadership to accept that framework”
EasyForexNews Research Team