Draghi Keeps Yellen’, Payrolls Are Tellin’


This week could turn out to be one of the most significant weeks for central banks since the inception of the Financial Crisis.

A week to start it all?

This week could turn out to be one of the most significant weeks for central banks since the inception of the Financial Crisis. Even beyond any surprises from the Reserve Bank of Australia on Tuesday morning or the Bank of Canada on Wednesday, markets will have a large focus on the ECB on Thursday and US payrolls on Friday (which will be heavily linked to the 16th December FOMC decision).

Before we get to the key events – the ECB meeting on Thursday and the US jobs report on Friday – we have a lot of data released from both areas. In the Eurozone, Unemployment is out on Tuesday, Inflation on Wednesday, PMIs throughout the week, while Retail Sales are on Thursday ahead of the ECB meeting and press conference on Thursday afternoon. In the US this week we have PMI readings, ISM readings, central bank speakers including Fed Chair Yellen on Wednesday and Thursday, ADP private jobs data, housing releases, all before the widely watched US Non-Farm Payroll jobs release on Friday.

Focusing on Thursday’s ECB meeting, last month ECB President Draghi reacted to continued low inflation and inflation expectations by signalling the ECB’s desire to further its current easy policy stance. Seemingly up for review at Thursday’s ECB meeting will be the current program of targeted lending; extending the size, duration, or composition of the current QE bond buying scheme; or even moving the current negative deposit rate further into negative territory (or setting up a two-tier deposit rate system based on deposit size). This should cause significant volatility in the Euro and ECB action may have longer lasting effects on the single currency into next year.

Meanwhile across the pond, Fed President Yellen has expressed her view that December’s FOMC meeting is a ‘live’ meeting to raise interest rates. Financial markets are pricing in an over two thirds chance of a first interest rate rise in the US since 2006, and Friday’s US payrolls report will likely be a deciding factor. A first interest rate rise from the world’s largest economy could have huge implications in currency markets, both for the US Dollar and for many country’s currencies that are linked to Dollar performance and US rates. This Friday’s US Payrolls release could be the beginning of that rollercoaster ride.

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