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Talking Points:

• Euro May Bounce as Status-Quo ECB Announcement Triggers Profit-Taking

• Bank of England Rate Decision May Amount to Non-Event for British Pound

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Monetary policy announcements from the Bank of England and the European Central Bank headline the economic calendar in the hours ahead. While the former may prove to be a non-event – leaving the British Pound rudderless in the near term – the latter has scope to trigger a response from the Euro despite the absence of materially new policy updates.

BOE officials have signaled they are in wait-and-see mode until the transitory pressure from lower oil prices on headline inflation eases, allowing space for the start of stimulus withdrawal. That points to a status-quo outcome this time around, meaning the central bank probably won’t issue a statement and leave traders to wait for the release of minutes from the sit-down for further guidance.

Turning to the ECB, the introduction of anything particularly novel seems likewise unlikely. The central bank has already announced its intent to launch QE at a pace of €60 billion/month and run the program through mid-2016. Any material changes to the effort will probably have to wait until after at least a few months pass and its efficacy can be preliminarily evaluated.

The passage of key event risk can be market-moving in its own right however, even without the emergence of anything that profoundly changes the fundamental landscape. Indeed, the release of the BOE’s quarterly inflation report last month was just such an instance: Mark Carney and company reminded investors that their desire to raise rates has not changed, revealing that the markets overshot in scaling back tightening bets since mid-2014 and driving Sterling higher.

In the case of the ECB, the absence of anything new in the policy announcement may highlight a lack of fresh fodder to fuel near-term selling pressure. The Euro has been falling alongside front-end bond yields since early May 2014 as trades priced in on-coming easing, putting speculative net-short positioning near the highest on record. In the meantime, the threat of imminent “Grexit” came and went. If investors don’t find another reason to build short positions, they may just begin to take profits on existing anti-EUR bets and send the single currency higher.

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