The ECB promised, now markets expect it to deliver. If it doesn’t, then we can expect yields in Italy and Spain to move higher and the single currency to take a hit. Whether the ECB President, Draghi, intended to create such expectation in the market when he spoke of doing “whatever it takes” last week, the fact remains that markets are, by their very nature, sensitive to any signs that European leaders are getting a grip on the current crisis rather than just muddling through. But simply pledging to re-start the ECB’s bond-buying program won’t be enough. In fact it could easily have the reverse effect as private investors fear that they will be behind the ECB in any future restructuring of debt. The issue is whether Germany is going to budge from its pragmatic stance. For the current ECB president’s part, the upside is that he has at least shown his willingness to get stuck in vs. his predecessor who appeared to stand on the sidelines. In itself, this is promising, given that the ECB remains the only pan-eurozone institution with any real bite and the with ability to offer credible support to financial markets.

Commentary

Fed goes as far it dares. The dollar rose by around 0.5% on the back of the Fed decision last night, as the US central bank failed to provide any further stimulus measures. That said, it went as far as it dared by stating that it will “provide additional accommodation as needed”, which is as much as it was prepared to commit to in terms of future action. Even though the dollar was higher on the disappointment at the fact there was nothing bolder, this statement is likely to keep hopes alive of action at the next meeting in the middle of September. One of the main points of focus for the Fed is the labour market and there are two employment reports due between now and the next meeting which will be crucial in shaping such expectations.

Sitting with sterling. The UK currency continues to hold up well, despite the recent poor run of data. The latest of these was yesterday’s disappointing manufacturing PMI data for July, which slumped back down to 45.4 after the recovery seen in the previous month. This did knock sterling lower but, vs. the euro, the losses were relatively contained as the single currency was a little nervous ahead of the ECB meeting today. Having re-started quantitative easing last month, the Bank of England is unlikely to sanction further policy measures at today’s meeting, the results of which are announced at midday UK time. That said, keep an eye open for the PBOC (China’s central bank), which has altered its own policy on both of the prior two months’ UK interest rate-decision days.

More bullish Aussie data. The run of decent data in Australia continued overnight with stronger than expected retail sales data for June, rising to 1.0% from the 0.8% (upward revision) in the previous month. There were also better than expected data on the trade side, slower imports allowing the improving trend of the past few months to continue. As we mentioned yesterday, the Aussie is starting to look a little tired after its recent strong performance, which is why the response to today’s data proved to be fairly muted. Longer-term though, the economic picture should continue to look relatively good, at least compared to elsewhere in the developed world.