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No ECB rate hike for two years

Currencies Direct June 23rd 2014 - 2 minute read

Any ECB rate hike is at least two years away according to the
head of the Austrian central bank, Ewald Notwotny, putting the
policy outlook for the ECB in sharp contrast with the Bank of
England and Federal Reserve who are both expected to begin
tightening policy in the next year. Forward guidance from the BoE
continues to turn more hawkish, with market expectations of a rate
hike towards the end of the 2014. The changing voting preferences
of the MPC are the key barometer in estimating when the first rate
increase may come. David Miles, perceived as one of the more dovish
members of the MPC, suggested over the weekend it was likely that
he will vote for increases to interest rates before his term ended
next year.

Sterling remains elevated against both the dollar and euro as we
open the week but there is little GBP data of note this week and
any movements will be driven by developments from the US and Eurozone. The Bank of
England’s FPC releases its financial stability report on Thursday,
which is expected to unveil macro prudential policy measures to
slow the housing market. That might include winding down the
help-to-buy scheme or imposing more rigorous lending standards on
bank mortgage lending.

Eurozone data this week focuses on flash PMI which is expected
to show services data offsetting slightly weaker manufacturing data
but broadly in line with 0.4 per cent growth for the second half of
the year. Inflation readings from Spain and Germany at the back end
of the week are forecast to show inflation dropping further and
affirming why the ECB
thought it was necessary to announce such a wide range of easing
measures (including possible QE) at this month’s meeting. Thursday
and Friday is the EU leader’s summit with the opposition by Britain
to the candidacy of Jean Claude Juncker for European Commission
President likely to be the key talking point.

US data this week includes durable goods orders, which is
expected to show slightly negative numbers for May. Personal
consumption is to remain stable and composite PMI showing a slight
uptick from last month to remain in strong expansion territory.
This morning, Chinese flash manufacturing PMI posted a return to
expansion but did little to lift the risk-off theme across the
markets on Monday morning.


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