Super Thursday arrives! ECB & BoE rate decisions

All eyes are on the central banks as the BoE prepares for a back-to-back rate hike. Will record inflation prompt a shift in tone from the ECB?

• Facebook stock set to open 20% lower
• BoE is expected to hike rates for a second time 
• ECB to justify dovish policy with record Eurozone inflation 
• OPEC+ raised its production targets from March

US markets managed to pull another positive close out of the bag, marking the fourth straight winning session. However, the mood soured following the release of Facebook parent company Meta’s results, which missed on both earnings and guidance. The stock tumbled 22% in extended trading and pulled US futures lower, setting a negative tone for Asia and heading into the European open.

Today’s focus in Europe is on the central banks with both the BoE and ECB monetary policy announcements.

BoE

The BoE is broadly expected to raise interest rates by 25 basis points. This would mark the second interest rate hike in two months and the first back-to-back rate hike in 18 years. In the December meeting, the BoE unexpectedly rose interest rates to 0.25%, at a time when Omicron was spreading rapidly, and another lockdown was on the cards. Still, concerns over runaway inflation prompted the UK central bank to act. Since then, inflation has risen further to 5.4%, meanwhile the labour market has remained solid, paving the way for another hike. 

Whilst a rate hike is priced in, any hawkish guidance from Governor Andrew Bailey could lift the pound higher back up towards 1.3650 and on to 1.37.

ECB

Whilst the BoE has been one of the more hawkish major central banks, the ECB has been one of the most dovish. The ECB are not expected to raise interest rates as Christine Lagarde & Co. continue to insist that high inflation is transitory. Still, with inflation hitting a record 5.1% YoY in January, even when expectations were for inflation to drop, and other central banks teeing the markets up for a rate rise in Q1, pressure is certainly mounting on the ECB to at the very least reduce stimulus, if not guide for a rate hike at the end of the year. 

Should the central bank show any hint of hawkishness EUR/USD could receive a boost towards 1.1380 the December high. However, should the ECB continue with its more dovish approach, central bank divergence could drag the euro lower against both the US dollar and the pound.

OPEC+

Oil prices are easing from a 7-year high on Thursday but are still on track for weekly gains, the seventh straight week of gains. After rising to $90 per barrel, the price has slipped lower following the OPEC+ decision to lift production levels by a further 400k barrels per day as from next month. However, the fact that oil has only slipped marginally following the agreement, suggests that there is little faith that the group can fully achieve the upwardly revised quotas. The group missed production targets in December and again in January, for a variety of reasons ranging from a lack of investment to militia unrest.