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Questions Abound ahead of BoE, ECB Rate Statements

Central banks have been making headlines and driving market prices this week. As investors are well aware, the unpredictable nature of the central bank-driven currency war continues to take no prisoners.

The People’s Bank of China cut its benchmark lending rate by 0.25% on Sunday in an effort to boost its slowing economy. Meanwhile, the Reserve Bank of Australia and the Bank of Canada held interest rates, although both left the door open for possible rate cuts in the future. The Reserve Bank of India cut 0.25 percentage points, and the National Bank of Poland cut rates by 50 basis points to 1.5%.

The Bank of England (BoE) and the European Central Bank (ECB) are both expected to hold rates unchanged tomorrow but for different reasons. The BoE is expected to raise rates later in the year and with more clarity after the U.K. general elections in May. The ECB, on the other hand, will likely hold its rates and announce further details on its much anticipated quantitative easing (QE) program. The bank, led by President Mario Draghi, will be thankful that the Greek debt talks have been delayed by four months, as he pushes forward a massive stimulus program aimed at restarting the European economy.

Little Is Expected of the Old Lady

The BoE is not expected to raise rates until after the May general elections.

The central bank was one of the tighter policy frontrunners last year, even taking the lead from the Federal Reserve, until the last quarter of 2014 forced British policymakers to change their upbeat tune to a more pessimistic one. The BoE continues to oversee an economy on the mend by making great strides on manufacturing and construction growth, albeit with low inflation deemed a transitory effect. The bank’s Monetary Policy Committee has voted 9–0 to keep rates on hold for the last couple of meetings, and little is expected to change this time out. The BoE’s rate stands at a record low 0.5% where it has been for six years.



GBP/USD continues in correction mode after the pair hit the 1.5550 barrier and marked the end of a strong pound rally. The USD remains data dependent, and with private employment numbers coming in under the forecasts, it puts further emphasis on the nonfarm payrolls (NFP) number on Friday to seal the week with a net positive gain for the dollar. U.K. data has been mixed and purchasing managers’ indexes failed to make the case for a stronger pace of economic recovery, in turn adding to the pound’s woe.

European Landmark Easing Program in View

The ECB will face the music on Thursday morning. But who will dance to its €1.1 trillion song?

The European benchmark interest rate will remain unchanged, but the focus will be on further details of the QE program that was announced last January. It’s expected the ECB will start buying the debt of eurozone institutions and government bonds this month. One question is, “when will those asset purchases actually begin?” Another has to do with how losses will be shared with the eurozone’s 19 central banks in the event of a sovereign default.

Meanwhile, the distractions of the Greek debt extension have been punted four months down the line, but that doesn’t mean Draghi will get away scot-free from answering questions as to when the junk-rated Greek bonds exemption he suspended will be reinstated. In any event, the market will once again be hanging off his words as he details his plan to hoist the European economy up and out of deflation. EUR pairs will be affected by his tone and his estimates on how long this massive QE program will take to start to change Europe’s fortunes for the better.



EUR/USD touched 11-year lows today as downward pressure builds in the run-up to the ECB’s press conference. Moreover, strong U.S. economic fundamentals have driven the EUR lower with the expectation that U.S. NFP data for February will validate the USD’s rally.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza [5]

Senior Currency Analyst at Market Pulse [6]
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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