Key highlights of the week ended January 22

Source: Dukascopy Bank SA
Euro zone
The ECB made a decision to hold all interest rates in the Euro zone unchanged. Separately, the deposit rate remained at historical low of –30 basis points, while marginal lending facility and main refinance rate were also flat at 0.30% and 0.05%, respectively. No change followed a wide range of supportive decisions undertaken in December when the ECB lowered deposit rate to –0.3% from –0.2% and announced it is going to extend the QE programme through March 2017. At the same time, during the press conference President Mario Draghi announced that the regulator stands ready to act again as soon as early March when the Governing Council is going to have next monetary policy meeting. Such comments came out as a surprise for the markets, with the Euro dipping down around 100 pips versus US Dollar in a few minutes after Draghi's words. President expects the very accommodative monetary policy to remain in place for a long period of time, being that growth and inflation expectations are highly likely to be downgraded one more time in March when new ECB staff projections will become available. 

Canada
The Bank of Canada kept its key interest rate on hold at 0.5%. The central bank said that risks to inflation remained roughly balanced, despite a renewed decline in oil prices and sluggish economic growth. The BoC expects inflation to climb to 2% by early 2017, while core inflation would remain around 2%. Meanwhile, declines in oil prices and other commodities represented a setback for the Canadian economy. The economic growth likely stalled in the final quarter of 2015, pulled down by temporary softness in the US economy, moribund business investment and several other temporary factors. The BoC now expects the economy's return to above-potential growth to be delayed until the second quarter of 2016. The central bank projects that the nation's economy will grow by about 1.5% in 2016 and 2.5% in 2017.

China
China's economy grew at the slowest pace in 25 years in 2015, increasing pressure on Beijing to act to address concerns of prolonged slowdown in the world's second biggest economy. In 2015, the Chinese economy expanded at a 6.9% pace, compared with officials' expectations for a 7% growth and down from 7.3% in 2014. In the final quarter of the year, GDP increased 6.8%, compared with September quarter's growth of 6.9%. To combat slowing growth, the Chinese government has unleashed a slew of easing measures, including interest rate and reserve requirement ration cuts from the PBoC. However, given a sluggish property sector, analysts predict further aggressive actions from officials, particularly in light of the Chinese economy's transition from a manufacturing-based export-reliant model to a more services oriented consumption. Moreover, the world's second biggest economy saw a difficult start to the current year, which included markets closure on two occasions as steep declines of more than 7% triggered market circuit breakers and a halt to trading, sparking jitters through global markets. 

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