Talking Points

  • Euro: ECB Keeps Rate On Hold, Outlook Remains Bearish
  • British Pound: Holds Above 38.2% Fib Even As BoE Expands QE

Euro: ECB Keeps Rate On Hold, Outlook Remains Bearish

The Euro struggled to hold its ground even after the European Central Bank kept the benchmark interest rate at 1.50%, and we may see the single-currency continue to trade heavy over the near-term as market participants speculate the Governing Council to expand monetary policy further. As the ECB keeps borrowing costs on hold, we may see the Governing Council show an increased willingness to expand its nonstandard measures, and speculation for additional monetary support is likely to weigh on the single-currency as interest rate expectations falter.

British Pound: Holds Above 38.2% Fib Even As BoE Expands QE

The British Pound tumbled lower after the Bank of England surprised the markets and expanded its asset purchase program by another GBP 75B, but it seems as though we will see the GBP/USD consolidate over the remainder of the week as price action holds above the 38.2% Fibonacci retracement from the 2009 low to high around 1.5250. As the BoE sees an increased risk of undershooting the 2% target for inflation, we may see the MPC carry its easing cycle into the following year, and the committee may continue to shore up the real economy as the U.K. faces a growing risk of a double-dip recession. In turn, it seems as though it will be just a matter of time before we see the downward momentum in the GBP/USD gather pace, and we may see the exchange rate fall back towards the 61.8% Fib around 1.4820-50 as the fundamental outlook for Britain deteriorates.