The oil market continues to take no prisoners as no sooner had we seen a sharp move above $30 on Friday, than we saw a similarly sharp move lower yesterday as nearly all of Friday’s gains were wiped out, dropping back below the $30 a barrel mark in the process, as the old concerns of oversupply and financial solvency of suppliers once again reasserted themselves, as producers continued to pump at record rates.

Far from being the exception, these +5% moves in a day are rapidly becoming the norm, and while they did translate into some sharp declines in US equity markets overnight the effect on European markets, while still negative hasn’t been nearly as sharp, though we still seem set to open lower this morning.

With last week’s ECB meeting still relatively fresh in the memory ECB President Mario Draghi reinforced his message from last week’s press conference by insisting that the ECB’s credibility was at stake if it didn’t take further steps to try and meet its inflation mandate. Given the December disappointment the ECB President is trying to convince investors that the central bank will be able to act if needed, and while the euro did weaken initially it hasn’t been able to sustain much of a move below 1.08 against the US dollar.

While Mr Draghi’s claim that “if a central bank sets an objective, it just can’t move the goalposts if it misses it” is laudable it also doesn’t bear up to serious scrutiny given how often central bankers around the world have done just that, with the Bank of England a serial offender, over the last few years.

Last night Bank of England MPC member Kristin Forbes outlined her belief that the recent falls in oil prices allowed the MPC more time to evaluate whether the recent falls in unemployment will eventually lead to a pickup in wage growth, following on from Martin Weale’s comments last week.

Today Bank of England governor Mark Carney can expect some tough questioning from MP’s on the Treasury Select Committee about his continued shifting of position on the UK economy and the timing of when interest rates might rise. As recently as August last year he was hinting that interest rates could be set to rise in the coming months only to revise that position at the beginning of this year.

The Federal Reserve also begins its latest two day meeting today with the problem of what to do with the continued resilience of the US dollar after last month’s long anticipated rate increase, served to push the US dollar back towards its recent highs.

Unfortunately for the Fed this appears to have largely been a problem of their own making with their expectations management somewhat lacking in the weeks since that meeting, as markets look to price in another 3-4 rate rises in 2016. This could well be corrected tomorrow evening and in this regard the statement is likely to be particularly important.

In short the upshot is this, the ECB can’t have a weaker euro without sending the US dollar higher, tightening monetary conditions even further, which is something the Federal Reserve could well be keen to avoid. Time to get out the popcorn and see how this one plays out.

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