£50 bn QE from the BoE
As expected, the Bank of England delivered an additional GBP50bn in the quantitative easing programme. In the statement, Governor King noted that there were some more positive signs and a gradual strengthening of output should be supported by a gentle recovery in household real incomes but issues in the Eurozone remain the big concern. The pound earlier found some support from better than expected trade and industrial production data and the reaction to the QE announcement was relatively muted. While the Greek negotiations are moving towards the final stages, there are now doubts over whether we will see any decisions by today. It had previously been announced by Eurogroup chairman Jean-Claude Juncker that a press conference is scheduled for 18.00CET on Thursday, after the Eurogroup meets. However, on Thursday EU sources noted that it is hard to say whether a deal can be agreed upon by today. Clearly time is running out quickly and there are several outstanding issues which have not been resolved. The ECB’s involvement in the debt swap remains a crucial element in the process and while we expect no major policy announcements in today’s meeting, Draghi’s press conference may provide new information on the ECB’s official stance, as well as further details on the collateral requirement changes offered in the December meeting. The euro drifted lower on Thursday given the uncertainty around the negotiations and the broader tone in markets was one of caution. Resolving the current quarter’s worth of Greece-related deliberations will buy the ECB significant time to focus more on policy calibration as it seeks to maintain the slightly better than expected growth momentum seen so far this year. Overnight EURUSD traded in a range 1.3216-1.3313, USDJPY 76.97-77.23.
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