What To Expect In The Euro Session

The interest rate announcement from the Bank of England headlines the economic calendar in European hours. While expectations widely call for policy rates to remain unchanged at the record-low 0.50%, price action may turn volatile regardless if Mervyn King and company signal an expansion to standing quantitative easing measures. So far, the bank has committed to buying 75 billion pounds in medium- and long-term government bonds. The growth and inflation outlooks are certainly supportive of a looser monetary stance: reputable think tank NIESR reported that the economy shrank -1.5% through the first quarter and could continue to contract for up to one more year; meanwhile, the Producer Price Index is set to fall to 2.1% in the year to March, the lowest since August 2007, pointing to downward pressure on consumer prices (the headline inflation gauge) in the pipeline as manufacturers pass on lower production costs via cheaper finished goods. Separately, the Trade Balance deficit is expected to narrow to 3.45 billion pounds in February from 3.58 billion in the prior month. This seems plausible if lackluster consumer demand weighs enough on imports to outpace the drop in outbound shipments, the latter fueled by the impact of the global downturn on foreigners’ purchases of UK wares. Indeed, consumer confidence has been hovering near record lows since January.

Turning to the continent, the final revision of Germany’s Consumer Price Index is set to confirm initial estimates calling for headline inflation to slow to 0.5% in the year to March, the lowest in nearly a decade. Despite tumbling prices and deepening recession across the Euro region, the European Central Bank cut interest rates less than economists expected last week, although bank president Trichet did say that rates had not reached “the lowest limit” and revealed that “the Governing Council intends to decide on further non-standard measures at our next monetary policy meeting”.

Switzerland’s annual Unemployment Rate is set to tick higher for the fifth consecutive month, rising to 3.3% in the year to March. The reading points to further downward pressure on economic growth: private consumption accounts for about 57% of total output and job losses will surely weigh on disposable incomes and trim spending. The government has forecast the economy will shrink -2.2% this year, the most since 1975.