Today’s central bank meeting will be closely followed by markets as there’s a real expectation Mario Draghi will be forced into a reversal of policy direction. After months of talking about normalising monetary policy, the latest conversations have revolved around the potential extension of new, cheap loans to Eurozone banks. Just how much detail is provided at this stage is unknown, but failure to act will do little to instil confidence in the common currency. After almost a decade of continuous stimulus, the ECB has limited firepower when it comes to restarting the economy, and any stimulus talk will likely be Euro-negative. The crucial question is just how aggressively the ECB will want to act at this stage.
An internal deadline of Monday morning has been set for amendments to the current Brexit plan to be agreed in Brussels, but optimism is in short supply. Despite these weeks of positioning and wrangling, Theresa May is expected to suffer another significant defeat in Parliament next week, pushing the country to extend the Brexit process or leave without a deal. These two options have very different outcomes for the Pound, but with clarity unlikely to be seen until the middle of next week, the uncertainty could leave Sterling under significant pressure in the intervening period.
The Pound is continuing to trade sideways against the US Dollar in the absence of fresh direction. Any Brexit developments could weigh here, while progress in the US-China trade deal may precipitate some Dollar weakness. The Greenback has been receiving considerable support from risk-off trades of late.
The Euro sold off against the US Dollar earlier in the week in anticipation of today’s ECB meeting. The detail here over the size and shape of any stimulus measures is likely to be important and could lead to further selling.
The Pound has been holding steady against the Euro since the end of last week as further direction is awaited. The ECB’s statement later today could provide the first piece of meaningful news, although gains could be short-lived if Brexit progress fails to materialise.