Data release to reveal the rationale behind ECB’s surprise interest rate cut

Currencies Direct November 25th 2013 - < 1 minute read

Data this week will finally reveal the rationale behind the
ECB’s surprise interest rate cut two weeks ago. The
combination of too little inflation and too much unemployment is
set to continue with expectations of a very modest rise in the CPI
reading to 0.7 per cent. The ECB’s move is to ward off deflation,
falling prices would raise debt/GDP levels and would reignite the
funding issues of 2011 in the European periphery. The ECB has
decided that for the good of Eurozone, Germany will have to accept
higher inflation in the medium term, bearing some of the costs of
adjustment. Both, surplus and deficit countries bearing the costs
of adjustment can only be a good thing. The euro remains subdued
but in current trading we can expect fireworks when BUBA chief,
Jens Weidman, speaks this evening. He will undoubtedly touch on the
rate cut and reaffirm German opposition to the move. This is a
political dog fight.

US data flow remains in the spot light with the prospect of
tapering beginning in March next year. Consumer confidence and
durable goods orders are due on Tuesday and Wednesday. Consumer
confidence is expected to show a slight increase from October to
72.4 but durable goods orders are forecast to fall back slightly
because of October’s very strong reading.

UK GDP on Wednesday is the key data point this week for
Sterling. First estimates for 3Q GDP are 0.8 per cent QoQ putting
the UK at the top of growth charts in the developed world. A
positive number is already reflected in the price of the pound, so
the risk remains to the downside should the number not meet
economist’s very optimistic forecasts.

Written by
Currencies Direct

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