Euro, Sterling Focus on Central Bank Meetings

Bank of England set to hold rates while growth concerns remain, with industrial and manufacturing data set to remain weak, ECB expected to hike rates despite debt and economy concerns, Australian employment data weighs on AUD, while US awaits ADP.

Recent economic data from the UK has seen the Bank of England hold rates at historic lows for a lot longer than most people had anticipated. Todays release of industrial and manufacturing production data for May is unlikely to change the belief of MPC policymakers that the UK economy remains too fragile to withstand a rate rise. Expectations are for a recovery from Aprils disappointing figures, though one has to remember that the Royal Wedding and Easter break played a large part in the disappointing April numbers. Both industrial and manufacturing production are expected to rise 1%.

Later in the day the Bank of England will likely announce that interest rates will remain on hold at 0.5%, so there shouldnt be any surprises there, given recent dovish comments from various policymakers.

It is in Europe that we could see some fireworks given the recent volatility caused by the recent ratings downgrade of Portugal by Moodys, and the rather hysterical European politicians reaction to it. There appears to be definitely a case of shooting the messenger, however it could be argued that the recent tightening policies of the European Central Bank arent exactly helping. Recent economic data appears to suggest that economic growth is starting to slow, especially in Spain and Italy and recent retail sales data in Germany and the Euro zone has been pretty awful.

Even so it will be a major surprise if the ECB does not raise rates by 0.25%, thus increasing borrowing costs to 1.5%, and putting further pressure on, not only the consumer in Europe, but also on peripheral bond yields with Italian 10 year yields already hitting levels last seen in 2008 in trading yesterday.

The tone of Trichets press conference will also be quite key, especially in view of recent events. Will he be hawkish or dovish, in other words will he flag up further rate rises down the line, or will he play down market expectations of further rises and adopt a wait and see approach. If he adopts a wait and see approach, which would seem logical given the softness of recent data, and market turmoil, then the single currency could start to slide again.

Yesterday's Chinese rate hike had seen the Australian dollar fall back, while this weeks RBA rate meeting had suggested that further tightening might be some way off due to a slowing economy. Today's unemployment report for June came in contrary to that belief suggesting that the economy still appears to be moving along nicely, showing a net gain of 23.4k jobs, above expectations of 15k, while the unemployment rate stayed constant at 4.9%.

In the US today's ADP data for June and weekly jobless are set to give the markets a taster for tomorrows all important June non-farm payrolls report.

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