ECB To Decide On Rates, Eyes On NFP Report

March 06, 2024 23:07

The European Central Bank (ECB) interest rate decision and the US Nonfarm Payrolls data release are among the most important financial events for the rest of the week. Later today, the UK Chancellor will present the Spring Budget that may include tax cuts.

ECB Interest Rate Decision

On Thursday, the ECB’s governing council will convene to decide on monetary policy and interest rates. Market analysts forecast that borrowing costs will likely remain on hold while they will expect to listen to Christine Lagarde’s comments on how the ECB plans to move ahead with its monetary policies as the end of the first quarter is near.

Headline inflation has dropped in the last few months, but core inflation appears to be stubborn.   Market strategists at Morningstar noted that “the fact of matter is though that inflation has fallen considerably and the trajectory is still positive. The MRO stands at 4.5%, meaning the bank has a lot of room for manoeuvre. It can implement a small cut in June, and wait to see the effects, without upsetting the applecart. With the European economy teetering on recession, we believe the ECB must now balance the (outside) risk of resurgent inflation, with the potentially more pressing need to ensure the economy doesn't enter a prolonged recession. June seems like a reasonable compromise in this regard.”

UK Chancellor To Present Spring Budget

In the UK, Chancellor Jeremy Hunt will give the public the Spring Budget details later today. ING economists stress that depending on the budget plan, the British pound could get a boost noting that “a moderately-sized tax relief package (i.e., one that does not trigger gilts turmoil) can probably give some support to GBP this week, but the spectrum of possibilities is admittedly quite wide.”

A report by Commerzbank regarding the pound’s potential reaction said: “The reaction will certainly depend very much on the extent of the relief in the end. And, above all, whether the Bank of England is trusted to manage this higher spending. One thing is certain: an expansionary fiscal policy will likely make it more difficult for the BoE to bring inflation under control in the long run. Given the uncertainties, it is difficult to make an accurate forecast for the Pound. If the market believes that the BoE will respond to the increased spending with later rate cuts, the GBP could benefit again today. On the other hand, if the cuts are significantly higher than expected, doubts may prevail and the Pound may suffer as a result.”

Fed’s Head To Speak Before US Congress

Fed Chair Jerome Powell is due to present the Semi-Annual Monetary Policy Report before the House Financial Services Committee in Washington. In the past weeks, Powell as well as some of the Fed’s policymakers have reiterated that they are ready to continue implementing the “higher for longer” approach when it comes to rates, expressing their satisfaction with the trend in prices.

Powell, in an interview recorded for CBS in February, had said the nation’s job market and economy are strong, with no sign of a recession on the horizon. The Fed’s head had noted: “I do think the economy is in a good place and there’s every reason to think it can get better.”

US Nonfarm Payrolls February Report

On Friday, economists will tune in as the US Bureau of Labour Statistics (BLS) will release February’s Nonfarm Payrolls figures. The NFP numbers are among the top financial data releases coming from the US each month as the Federal Reserve considers developments in the labor market when adjusting its policies.

The expectation for the NFP is for a decline to reach 200,000 against January’s figure of 353,000. If the NFP reading comes in at around 200k, the US dollar could weaken as data would indicate that high interest rates have taken a toll on the country’s economy, leading the Fed to reduce them.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.