Later today sees the monthly policy announcements from both the Bank of England (BOE) and European Central Bank (ECB). Whilst both are expected to adopt a ‘wait and see’ approach and leave official policy unchanged, given the weakness in the respective economies including the recent loss for the UK of its AAA credit rating and for the euro zone, the difficult bail-out of Cyprus, we may just see a ‘tweaking’ of policy as today unfolds.
Overnight, we have seen the monthly policy announcement from the Bank of Japan (BOJ) with its new Governor Haruhiko Kuroda. It has embarked on an aggressive monetary stance determined to fight deflation.
The BoJ left Japanese interest rates untouched at record lows but indicated that it would pursue quantitative easing as long it was necessary in order to achieve its new 2% inflation target. With regard to asset purchases, the BoJ plans to double its holdings and said it was likely to buy 7 trillion yen in long-term Japanese government bonds per month.
Yesterday saw US dollar weakness after the publication of a disappointing ADP report and ISM Non Manufacturing data. The ISM institute’s non-manufacturing sector survey fell to 54.4 for March, lower than expectations.
A weaker than expected ADP National Employment Report showing an increase of just 158,000 jobs, well below the consensus forecast of 200,000 also hit the dollar.
The pound continues to fall ahead of the BOE decision at 12 noon today. Yesterday saw the publication of data from the UK construction industry which showed yet another decline in March, albeit at a slower pace than that seen the previous two months.
Factors to blame include the unusually bad weather conditions and subdued underlying demand. The Markit survey also highlighted the civil engineering sector as the biggest drag on the sector during the four-week period, with the pace of contraction being the fastest since October 2009.
Tim Moore, Markit's Senior Economist said "Shrinking investment spending and intermittent output disruptions amid unusually bad weather kept the UK Construction PMI entrenched in contraction territory at the end of the first quarter. The negative print for construction output mirrors that seen for manufacturing, and now leaves the service sector as the last great hope for avoiding another slide in UK GDP"
David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply said “The construction sector seems to have a spring in its step as confidence hit its highest level in a year despite the challenging state of the weather, performance and output in March. Whether this is a reaction to the government’s efforts to rejuvenate construction or simply an acknowledgement that things could not have been much worse than in February, we will have to wait and see."