December is set to be a crucial month for central banks in the US and Europe, as markets expect major decisions in the weeks to come. The US dollar has continued to strengthen against its major counterparts as we head into the week. Though there is a spate of US economic data to be released today, markets will be keeping a close watch on Friday’s non-farm payroll report and Federal Reserve Chair Janet Yellen’s speech for signals on interest rate rises.

After all the months of speculation, it looks increasingly likely that investors are positioned for a US interest rate rise announcement mid-December. The euro has dropped considerably over the past month against the dollar.

Action-packed calendar for Eurozone
Meanwhile, divergent monetary policy could not be more pronounced between the US and the Eurozone as the European Central Bank (ECB) prepares to announce a further boost to its quantitative easing programme. ECB President Mario Draghi is still concerned about sluggish inflation and growth in the Eurozone, so the ECB could announce further stimulus measures – it should be noted that analysts also expect a deposit rate cut.

If the ECB increases stimulus, the euro is likely to weaken further. It’s already dropped close to 12% this year as it moves closer to parity with the US dollar. Thursday’s ECB meeting will be the main driver for markets and direction for the euro, coupled with US job numbers on Friday and the US interest rate decision.

In an action-packed economic calendar for today, data out form the Eurozone comprises of Italian, French and German manufacturing and unemployment numbers and from the US we have ISM manufacturing data, as well as car sales and weekly crude and gas inventories.

Bank of England stress test not stress-free for RBS and Standard Charter
Sterling also has come under pressure as the Greenback continues to add muscle. The Bank of England’s Monetary Policy Committee has reasserted its view that accommodative monetary policy continues to remain its preferred stance throughout 2016. Given the growing likelihood that the US will raise interest rates, should the euro and Greenback move towards parity, the Sterling-dollar pairing and Sterling-euro pairing could together be trading close to the 1.47-1.48 mark.

For interim direction, markets will focus on today’s economic data from the UK. This comprises of a speech by Governor Mark Carney on the BOE’s stability report and manufacturing PMI data for November. All of the banks have passed the stress test, so attention will turn to the lowest performers – RBS and Standard Charter.

Information courtesy of Currencies Direct
The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information. This article was written by Amir Khan at Currencies Direct.