Euro stays in tight range against US dollar and yen as markets away ECB announcement and press conference. ECB would likely announce a new round of QE measures including government bond purchases. Over the past week, the consensus was that the worth of the program would be around EUR 500b. Yet, there have been heightening speculations that the central bank would propose spending of EUR 50b a month, through December 2016, on bond buying. Besides the size, we believe the timing of implementation and the risk allocation method would be critical. A more controversial top is whether the losses on the purchases would be shared by national central banks or not. Under the risk-sharing model, the ECB would use its balance sheet to purchase sovereign bonds of Eurozone member states, so that the default risk would be borne by NCBs according to their capital key. There are a few measures that the ECB might surprise the market pleasantly. For instance, it might announce to raise the balance sheet increase target from EUR 1T altogether with a higher-than expected purchase amount of sovereign debts. It might also announce full technical details so that the actual purchases can begin in as soon as February.
Canadian dollar tumbled sharply yesterday after the surprised rate cut by BoC. Surprisingly, the BOC announced to cut its overnight rate to 0.75% from 1% in January so as to insure against the risks of further decline in oil prices on inflation and financial stability. Policymakers saw downward pressure on headline inflation from lower energy prices while upward pressure could come from depreciation of Canadian dollar. On net, they were more concerned about the downside risks and focused on the 'material slack' remaining in the economy. The BOC also revised lower its growth and inflation outlook, suggesting further easing cannot be ruled out in coming months. More in BOC Cut Rates, Insuring Against Headwind Posed By Oil Price Decline.
Elsewhere, New Zealand Business manufacturing index rose to 57.7 in December. Australia consumer inflation expectation rose 3.2% in January. UK will release public sector net borrowing. US will release jobless claims and house price index.