ECB and BoE rate decisions today
The ECB and Bank of England (BoE) both announce interest rate decisions later today. The ECB is expected to remain on hold again (at 2%) at this meeting, and indeed for the rest of this year according to current market pricing. The BoE is also expected to keep rates unchanged (3.75%) today but is seen cutting again later this year (by June-July). In FX, the euro has been largely treading water against the dollar ahead of the ECB meeting, trading at around $1.18 this morning. Sterling is on the back foot against both the dollar and the euro though amid political tensions in the UK related to the Mandelson controversy. It is trading at around $1.3625 and £0.8660 respectively, down from highs yesterday of over $1.37 and circa £0.86.
In government bond markets, German yields edged down across the curve on softer than expected Euro area inflation data, while UK and US yields were flat to marginally lower at the short-end of the curve but marginally higher in the 10-and 30-year areas. In equity markets, the Nasdaq in the US sold off again, shedding another 1.5% or so, while the S&P 500 finished down around half a percent. European stocks again outperformed their US peers with the Euro Stoxx 600 ending broadly flat on the day.
Headline inflation in the Euro area fell to 1.7% in January (from 2.0% in December) according to the flash reading, its lowest level since April 2021, mainly reflecting an acceleration in energy price deflation last month. Core inflation – which excludes energy and food – dipped as well though, to 2.2% from 2.3% in December, with a decline in services inflation (to 3.2% from 3.4%) more than offsetting a small uptick in goods inflation (to 0.4% from 0.3%). According to the ECB’s December projections, both headline and core inflation are expected to hover around the 2% target over the course of this year.
There was a mixed bag of economic data in the US. The ISM services index was a touch stronger than expected in January at 53.8, unchanged from December and indicating solid growth in this sector of the economy at the start of 2026. The ADP employment report was a little weaker than expected though. Private sector employment increased by just 22k in January, down from an average monthly increase of 44k in the final quarter of 2025, suggesting the ‘low hiring’ feature of the labour market has continued into this year.
As well as the ECB and BoE interest rate decisions, which will be the main focus for markets today, economic data due include new jobless claims (for last week) and job openings (December) in the US; retail sales (December) in the Euro area; and the construction PMI (January) in the UK.