European Central Bank to Hold Awaiting The Fed's Move


The euro is lower versus the dollar ahead of the European rate statement. The USD has advanced versus the single currency after Fed members put the U.S. interest rate hike on the table for March. Political risk from European elections, in particular the French election, have put downward pressure on the euro despite inflation recovering above the 2 percent target set by the central bank.

The European Central Bank (ECB) will release its rate statement on Thursday, March 9 at 7:45 am EST (12:45 pm GMT). The market is not expecting a change in rates, but will look to President Mario Draghi for further insight into the ECB’s plans to taper its quantitive easing (QE) program. European economic recovery has sparked calls for a tapering call, but the central bank could remove key words and emphasis on the need to keep monetary policy accommodative. The EUR will be under pressure if Draghi’s press conference is less dovish than expected a day ahead of what investors deem the final hurdle before a March rate hike form the Fed, the NFP jobs report. Mr. Draghi will have a tough job of communicating to the market that while there is evidence of a recovery, it would be premature to reduce the size of the stimulus program.

The words from U.S. Federal Reserve members have bought the ECB some room to maneuver as a Fed March rate hike is priced in for next week reducing the urgency of ECB action for later in the year. Political anxiety will continue to drive the EUR as improving inflation data had help from volatile energy and food prices.

The EUR/USD lost 0.313 percent in the last 24 hours. The single currency is trading at 1.0544 after the ADP Non-Farm Employment Change showed U.S. private employers added 298,000 new jobs in February. The forecast called for a gain of 184,000 and the final number was an improvement of the updated 261,000 figure reported last month. The USD gained with the release ahead of the U.S. non farm payrolls (NFP) report on Friday.

Quarterly U.S. Labor productivity was unrevised at 1.3 percent from preliminary data. U.S. productivity slowed down in the last quarter of 2016 after a 3.3 percent increase in the third quarter. Lack of wage growth has been the biggest obstacle for the Fed’s tightening monetary policy and are tightly correlated with gains in productivity.