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Forex: ECB to set tone for Central Banks

The focus on Central Banks will increase today as the ECB makes its latest policy announcement. This is significant in that it is the first of what is a major month of monetary policy making with the Bank of England’s rate decision and voting results next Thursday, followed by the much anticipated FOMC rate decision the Thursday after. The ECB has had a busy year after introducing its formal quantitative easing program and then having to work hard alongside politicians to prevent the break up of the Eurozone. Now that the risk of deflation and Grexit have subsided, investors will be keenly listening to see what Mario Draghi has to say about the recent movements in financial markets and he is expected to maintain a dovish stance with a lowering of inflation expectations. What would cause euro weakness is any indication that might suggest further monetary easing from the ECB.

Today’s meeting will also be monitored by other central bankers as its dovish tone could rub off on the main event of the month, none other than the FOMC. As we approach September 17th more analysts are joining the ‘no change’ camp especially after yesterday’s ADP figure that was slightly below expectations and the previous month was revised lower. A lot will ride on tomorrow’s nonfarm payroll data, expected to show 220k new jobs.

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