Bank of England Rate Decision a Likely Non-Event for British Pound

Talking Points

• Bank of England Rate Decision Likely Another Non-Event for British Pound
• Swiss CPI to Show Deeper Deflation, May Stoke EURCHF Floor Hike Bets
• US Dollar Corrected Lower Overnight, with Aussie and NZ Dollars Leading
• European Currencies Struggle After ECB Rate Decision, Spanish Bond Sale

The Bank of Englandrate decision headlines the economic calendar in European hours, but the announcement is likely to be another non-event. BOE Governor Mervyn King and company topped up their asset-buying efforts in February and are likely to wait until that increase has been fully implemented in May to consider additional steps. The same month will conveniently mark the publication of an updated quarterly inflation report, which will update the bank’s guidance on the economy and serve as the basis for shaping policy going forward. The BOE typically doesn’t release a post-decision statement when no policy changes have been implemented, so this month’s outing seems likely to offer no significant fodder for speculation and should thereby pass with little fanfare.

Elsewhere, Swiss CPI data is expected to show that deflation deepened in March, with prices falling 1.1 percent from a year earlier. This would put the pace of decline just a hair shy of the record 1.2 percent recorded in July 2009, opening the door for traders to build expectations of additional easing and perhaps an increase in the EURCHF floor from its current 1.20 level. The March SNB FX Reserves reading may prove telling on that front, with a strong pick-up hinting that policymakers are stepping up efforts to beat back the Franc.

The US Dollar (ticker: USDollar) pulled back overnight after two days of aggressive gains, sliding as much as much as 0.2 percent against its leading counterparts. The Australian and New Zealand Dollars outperformed having suffered some of the largest losses against the greenback since the start of the week. European currencies were not able to meaningfully capitalize as markets remained unnerved by ECB President Mario Draghi’s warnings of downside risks to Eurozone growth following yesterday’s rate decision and a disappointing Spanish bond auction that rekindled sovereign risk fears.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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