Euro rebounded broadly overnight on building expectations that ECB would keep the policy rate unchanged at 0.75% this week. According to a Reuters poll, 67 out of 73 surveyed economists are expecting ECB to stand pat. Though, forward rate contracts are still pricing in a 25bos cut by then end of June. It’s perceived that while ECB has indicated the openness to a rate cut, the decision will largely depend on the willingness of core Eurozone countries. Germany CPI rose more than expected to 2.1% yoy back in December while Eurozone CPI also continued to stay above ECB’s target and was at 2.2% yoy. The stubborn inflation reading would probably tie up ECB’s hands for cutting rates in Q1.
There was also additional support for the common currency from news that former Italian prime minister Berlusconi won’t run for the post again, for the fourth time, in February’s election even if his alliance wins. Markets are cautious on the election results as the reform programs brought in by prime minister Monti’s technocratic government are temporary and need to be replaced by formal laws. Currently, central left alliance leader Pier Luigi Bersani is running ahead in polls but relatively little was heard from him.
Data from Australia saw trade deficit widened to AUD 2.637b in November, bigger than expectation of AUD 2.30b. Prior month’s deficit was also revised higher to AUD 2.433b. The 1% growth in exports were more than offset by the 2% jump in imports. UK BRC sales monitor rose 0.3% yoy in December. Swiss unemployment, German trade balance, Eurozone retail sales, unemployment and confidence indicators will be released later today.
EasyForexNews Research Team