Policy Divergence 2.0 increasingly priced but further limited FX action possible

This will be a key week for determining the strength of the ECB-Fed policy divergence theme (“divergence 2.0”) which has been increasingly occupying markets in recent weeks. While Thursday’s much-awaited ECB meeting tops the billing, it will be sandwiched by two high-profile appearances by Yellen (economic outlook speech on Wednesday, address to the congressional Joint … More Policy Divergence 2.0 increasingly priced but further limited FX action possible

Draghi “we will do what we must”: keeping up the downward EUR pressure

My previous post encouraged my readers to listen the Draghi and Praet’s dovish comments rather than think of recent easier financial conditions as a reason for the ECB to ease less than expected.  So Draghi’s powerful speech today reinforces my existing view that the ECB easing on 3 December is likely to exceed market expectations (although … More Draghi “we will do what we must”: keeping up the downward EUR pressure

ECB to deliver easing despite easing financial conditions: listen to Draghi and Praet

I argue below that the ECB seems likely to at least meet market expectations for easing on 3 December, despite EA financial conditions having recently eased. While tightening financial conditions contributed to the ECB turning dovish, the reverse doesn’t apply. The fragile EA macro situation means that ECB can’t take the risk of the recent … More ECB to deliver easing despite easing financial conditions: listen to Draghi and Praet

BOE Pea Souper Thursday Raises Question and Hasn’t Yet Dislodged Fed Mini Me Tendencies

The BoE was in distinctly dovish mode yesterday, despite inflation lying further above target at policy-relevant horizons. I’d characterise it as “pea souper Thursday”: the strong focus on EM weakness and more persistent disinflationary impacts from previous sterling strength echo recent foggy UK weather. The main lesson seems to be that MPC are keen to … More BOE Pea Souper Thursday Raises Question and Hasn’t Yet Dislodged Fed Mini Me Tendencies

MPC Preview: Likely cautious rates pushback

Tomorrow’s Bank of England “super Thursday” combination of MPC vote, MPC minutes and Inflation Report (IR) seems biased to being a little more “super” than in August, although my base case is for MPC to continue treading cautiously. In particular: • My modal case is for an unchanged 8-1 rate vote, but the risks are … More MPC Preview: Likely cautious rates pushback