Sterling almost scored and the pound almost went up. Not necessarily in that order. The bigger story, though, was the Federal Open Market Committee minutes. And the biggest was the change to the European Central Bank’s monetary policy framework. Yet after all that, only 0.5% separated the leading USD and JPY from the Northern Scandinavian crowns at the rear.
After a year and a half of deliberation the ECB’s strategic review has come to a conclusion. This afternoon the bank’s president, Christine Lagarde, will hold a press conference to reveal the result. In the meantime, the ECB has let it be known that it will alter the inflation target as well as addressing climate change and housing costs.
From the market’s point of view the important part of that will be the inflation target. The understanding is that, instead of pitching the inflation target “close to but just below 2%”, the ECB will cross out the first five words and make the target simply “2%”. The intention is to make 2% look less like a cap and more like the target it is.
Sooner rather than later
The minutes of the June Federal Open Market Committee did not give much away. They contained no details of when the tightening of monetary policy will begin. However, there was a hint that it might happen sooner than the market expects.
Buried within the text was the acknowledgement that “Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data”. With that in mind, there was general agreement that the FOMC should prepare itself to adjust the asset purchase programme at short notice if circumstances change.
After a few minutes of volatility immediately following the minutes’ publication, the dollar edged higher, but without any real sense of purpose. It is an average of 0.3% higher on the day, a seventh of a cent firmer against the pound.
Canadian jobs and ECB policy
ECB President Christine Lagarde is slated for three appearances today and tomorrow. The bank’s strategic review will be front and centre. The key ecostats come on Friday, with UK output and trade, and Canadian employment.
Wednesday’s data did not add much to the mix. Canada’s Ivey PMI for June at 71.9 was not quite up to the standard of March’s 72.9. Britain’s RICS house price balance hit a 33-year high at 83% as demand continued to outpace supply and one estate agent in York spoke of “the busiest sales month on record”. In Brussels the European Commission published its summer economic forecast, which projected a rebound “faster than previously expected”.
A rather dull collection of data today includes US weekly jobless claims and, tonight, Chinese inflation. A raft of UK statistics ahead of London’s open on Friday brings industrial and manufacturing output, the balance of trade and GDP for May. Tomorrow afternoon analysts expect Canada to announce the addition of 195k jobs in June.