Market Summary (08Jan)

Euro rebounded broadly overnight on building expectations that ECB would keep the policy rate unchanged at 0.75% this week. According to a Reuters poll, 67 out of 73 surveyed economists are expecting ECB to stand pat. Though, forward rate contracts are still pricing in a 25bos cut by then end of June. It's perceived that while ECB has indicated the openness to a rate cut, the decision will largely depend on the willingness of core Eurozone countries. Germany CPI rose more than expected to 2.1% yoy back in December while Eurozone CPI also continued to stay above ECB's target and was at 2.2% yoy. The stubborn inflation reading would probably tie up ECB's hands for cutting rates in Q1.