God willing, the market will be waiting today for the ECB’s interest rate decision which is widely expected to keep the interest rate unchanged by 0.75% but there can be turning back of having this decision by majority as what has been done on 6th of last December meeting which lead to drive the single currency down to 1.2882 versus the greenback not unanimously as what has happened in the recent 2 meeting because of the weak economic data which are coming out from the euro zone and the inflation easing down by this economic slowdown.
So, there can be also today another down revision of the inflation and the economic growth in the Euro zone by the ECB after it had lowered its expectations of them by the beginning of this year when it has announced that the inflation is to be down in 2013 from 1.1% to 2.1% giving wider range for 2014 to be from 0.6% to 2.2% and it has lowered its EU GDP expectation of 2012 to be from -0.4% to -0.6% and for 2013 to be from -0.3% to -0.9% expecting turning back to the positive territory in 2014 to be from 0.2% to 2.2%.
We have seen actually easing of the EU CPI flash reading of February to 1.8% while the ECB yearly target stands at 2% and we have seen also maintaining of the EU GDP shrinking in the fourth quarter of 2012 at 0.6% q/q and 0.9% y/y in the second reading of it led by q/q falling of EU exports by its fastest pace in 4 years by 0.9%.
We have seen also rising of the unemployment rate to 11.9% in January in the euro zone and falling of Feb EU PMI composite to 47.9 from 48.6 in January showing persisting existence in the contracting territory below 50.
While there is a bigger probability today to have an action by the MPC from England after the MPC recent meeting minutes on 7th of last month have shown more followers to David miles who has voted on 10th of last Jan alone in favor of increasing BOE’s assets purchasing plan by another Stg25B to be Stg400B but the majority came again by keeping it unchanged despite Marvin King adoption of Miles’s view beside Fisher against the other six members.
As the data which have come later from UK have shown significant drop of the economic activity as UK PMI Manufacturing index has dived into the contraction territory reaching to 47.9 in February, UK retail sales have slumped by 0.6% yearly and monthly in Jan and ILO Unemployment rate rose to 7.8% again in and that’s why King has seen as he has said that there can be space for another stimulation step with these current growth downside risk causing the current slowing down pace and it is less probable to cause rising inflation threat despite BOE’s recent expectation of having the yearly inflation rate above its target at 2% for the coming 2 year by God’s will.
From the other side, there are emerging of the stagflation risks again in UK which cooled the BOE role in 2011 when the economy was depressed while the prices were rising brining UK CPI above 4% y/y all over 2011 months before reaching 4.8% in September 2011 before easing back again giving BOE a leeway to stimulate the economy again in 2012 by pushing liquidity into its APP to reach Stg375b as the yearly inflation rate have come under pressure in UK after diminishing the impact of the standard rate of VAT increasing for underpinning the governmental resources to 20% from 17.5% on 4th January 2011 which has contributed in raising the inflation by about 0.75% yearly over all the months of 2011.
While cutting the taxes in UK is a ruled out thing currently especially after Moody’s downgrading of UK to Aa1 from AAA showing that there can be a financial cooling down besides a monetary cooling too as BOE is looking closer again to the same stance of fearing of the prices rising when it is to stimulate the growth or the economic depression when it is to anchor the prices by a tightening action.
You can see a clear materialized negative impact of these conditions on the wages in UK which came down to the lowest rate since 2003 to be at 11.21 pound per hour showing lower prosperity amid continued rising of the prices dampening the British citizen confidence in spending.
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