Turning Off the Quantitative Easing Taps

The euro weakens as the ECB withdraw crisis-era stimulus but flag downside risks to economic recovery.

Previous Day's Market Highlights

As expected, the ECB kept interest rates on hold and brought their crisis-era quantitative easing programme to an end. Despite this, the euro weakened by around 0.3% due to a downward revision of growth and inflation forecasts for 2019 and 2020. In addition, the single currency was sold off as President Draghi commented that the “balance of risks is moving to the downside”.  The change in risk sentiment has been driven largely by geopolitical developments and market volatility, with market participants reading into these remarks that an economic slowdown could be on the horizon, potentially delaying a first rate hike.
 
Elsewhere, the Swiss National Bank kept monetary policy unchanged (as expected) however also downwardly revised their forecasts. The SNB are highly unlikely to make any changes to monetary policy until their counterparts in the eurozone have begun to raise rates. Sterling was little changed on the day after it was announced that a ‘meaningful vote’ on the Brexit deal would be held after Christmas and the EU remained unwilling to reopen and renegotiate the withdrawal deal. 
 
There was little other economic data on the calendar, however US weekly jobless claims were a positive surprise to the market, showing 206,000 new jobless claims last week - beating market expectations. The dollar was around 0.3% stronger against a basket of peers after the release.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1121 1.1484 1.1004 4.18%
GBP/USD 1.2625 1.3030 1.2491 4.14%
EUR/USD 1.1353 1.1472 1.1267 1.79%
GBP/AUD 1.7590 1.7958 1.7208 4.18%
GBP/NZD 1.8580 1.9147 1.8183 5.03%
GBP/CAD 1.6903 1.7228 1.6722 2.94%

Today's Market Highlights

Economic data will come to the fore to finish the week, with major releases from both the eurozone and the US. First on the calendar is the latest set of manufacturing and services PMI figures from the eurozone, with both set to show a slightly increased pace of expansion in the respective sectors compared to last month. This may slightly allay fears of an economic slowdown, as flagged yesterday by the ECB. 
 
The second major data release is retail sales figures from the US. Consensus is currently for an increase of 0.2% on a month-over-month basis, with market participants likely to use the figure as a gauge of the health of the US economy going into the festive season. 
 
Sterling will remain driven by Brexit related headlines and is likely to shrug off the release of the low significance CB leading index. No central bank speakers are scheduled, with the Fed now into its media blackout period ahead of next week’s meeting. 
 
Finally, highlights next week include the final Fed, BoJ and BoE meetings of the year with the Fed widely expected to increase rates by 25bps. Other points to note include UK, Eurozone and Canadian inflation figures in addition to US and New Zealand GDP releases.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:00am EUR Flash Manufacturing PMI 52.0 51.8
9:00am EUR Flash Services PMI 53.5 53.4
1:30pm USD Retail Sales (m/m) 0.2% 0.8%
1:30pm USD Core Retail Sales (m/m) 0.3% 0.7%