Much of the currency world is awaiting the European Central Bank’s monetary policy decision. The European Central Bank’s interest rate decision is likely to make no impact, because the market has completely priced in a 25bp rate hike. This suggests that the EUR/USD will probably not budge on the actual rate announcement. Instead, what will move the Euro are the comments from ECB President Trichet at the accompanying press conference. We expect Trichet to remain optimistic about growth, but intentionally drop the words “strong vigilance,” regardless of whether he expects to raise interest rates beyond June or not. The markets will scour the accompanying statement for any clue on when the next tightening will occur.
Looking down, the Australian GDP recorded better than forecast 1.6% growth verses the 1.2% expected. This news has instantly raised market expectations of an RBA rate hike in the near future. Although the Reserve Bank of Australia chose to hold steady, keeping short term rates at 6.25%, if the Australian economy continues to demonstrate strong performance, the pressure on the monetary authorities to tighten will escalate considerably. The market’s attention will turn next to tonight’s employment change report due 0:30 GMT. Analysts expect a decline to 10K new jobs from 49.6K generated the month prior, but if employment data once again surprises to the upside the likelihood of another 25-basis point rate hike at RBA’s next meeting on July 3rd will be virtually guaranteed. Currently, the EUR/USD is down at 1.3502 and the AUD/USD is at .8428, with the GBP/USD sideways at 1.9933.