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Markets Anticipate Muted Response to Thursday ECB

FOREX
  • Currency markets are largely holding their late Wednesday session moves, with USD/JPY comfortably off yesterday's lows and holding above Y147.50. EUR/USD and GBP/USD are similarly creeping off lows, but the mid-week highs remain out of reach for now.
  • The Norges Bank made no change to either rates or guidance at this morning's decision, with the bank pledging to keep rates at current levels for an extended period. The policy statement acknowledged that the currency is stronger than expected, however there was little change to the economy since December's projections. NOK firm modestly once the rate decision had concluded, with firmer oil prices likely having a bigger impact than policy this morning. EUR/NOK has printed lower lows for a fourth session, with the trend outlook remaining bearish for now.
  • The ECB rate decision takes focus going forward. Despite broad consensus for no change at today’s ECB decision, EUR overnight vols have crept higher, with EUR/GBP implied nearing the best levels of 2024 having printed just over 8 points. This equates to markets pricing a ~25 pip swing in the cross over the course of the decision – a move which would bring yesterday’s lows of 0.8536 into contention in the event of EUR weakness. A weaker EUR into the Thursday NY cut would put the E300mln expiry at 0.8500 into play.
  • US data picks up into the Thursday session, with advanced Q4 GDP on the docket as well as weekly jobless claims and the prelim December durable goods orders read. Fedspeak is expected to remain muted, with the FOMC inside their pre-decision media blackout period.
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