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Pound May Rise on BOE Policy Hold, Dollar May Pull Back Further

By , Currency Strategist
10 May 2012 06:21 GMT

Talking Points

  • British Pound May Rise as BOE Holds Back Stimulus Despite UK Recession
  • ECB Monthly Report Carries Downside Risks for Euro, Risk Appetite Trends
  • Dollar and Yen Correct Lower, Aussie Outperforms on Jobs Data Overnight

The Bank of England policy announcement headlines the European economic calendar. Expectations suggest Mervyn King and company will stick with the status quo, keeping the target lending rate at 0.5 percent and holding off from expanding asset purchases beyond £325 billion. Importantly, today’s decision will be made on the basis of an updated quarterly inflation report – a document to be made available publicly next week – meaning it is likely to be representative of where the central bank plans to take policy over the coming three months. This means that staying on hold here could prove supportive for the British Pound, signaling that inflation concerns that emerged in minutes from April’s BOE sit-down are likely to trump growth concerns for the time being despite the UK entering a technical recession in the first quarter.

Separately, the European Central Bank will publish May’s monthly report, which this time around will include the quarterly survey of professional forecasters. Traders will look to the document to inform their outlook for the depth of the economic slump plaguing the Eurozone as well as gauge the likelihood of additional ECB stimulus emerging in the near term. Considering the European downturn presents the most significant headwind facing global growth this year, a particularly dour report has scope to carry negative implications for the Euro as well as risk appetite at large.

The US Dollar and Japanese Yen sold off overnight as prices corrected after two days of gains. The Australian Dollar outperformed after April’s Employment report unexpectedly showed the economy added 15,500 jobs while the jobless rate fell to 4.9 percent, the lowest in a year. Details of the report proved less supportive than the headline number would suggest. The increase in hiring came entirely from part-time jobs while full-time employment declined by 10,500 and at least some of the decline in the unemployed owed to a shrinking labor force, with the participation rate dropping to 65.2 percent.

Still, the figures proved sufficient to trim bets on another RBA rate cut in June. Priced-in expectations now point to a 63 percent probability of a 25bps reduction in benchmark borrowing costs next months compared with 90 percent before the jobs data crossed the wires. China’s Trade Balance figures capped the Aussie’s advance however as imports registered at near-standstill while exports grew at the slowest pace in three months, stoking fears of a slowdown in Australia’s top overseas market. S&P 500 stock index futures are pointing higher in late Asian trade, hinting stocks-linked currencies may continue to recover against the safe-haven field.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

17:30

NZD

REINZ House Price Index (APR)

3334.0

-

3343.5

17:30

NZD

REINZ House Price Index (MoM) (APR)

-0.3%

-

1.9%

17:30

NZD

REINZ House Sales (YoY) (APR)

13.8%

-

25.3%

22:30

NZD

Business NZ PMI (APR)

48.0

-

53.8 (R-)

23:50

JPY

Bank Lending incl Trusts (YoY) (APR)

0.3%

-

0.8%

23:50

JPY

Bank Lending Banks ex-Trust (APR)

0.4%

-

0.9%

23:50

JPY

Current Account Total (¥) (MAR)

1589.4B

1449.0B

1177.8B

23:50

JPY

Current Account Balance (YoY) (MAR)

-8.6%

-17.1%

-30.7%

23:50

JPY

Adjusted Current Account Total (¥) (MAR)

785.5B

650.0B

856.2B (R+)

23:50

JPY

Trade Balance - BOP Basis (¥) (MAR)

4.2B

-42.8B

102.1B

0:27

NZD

QV House Prices (YoY) (APR)

3.1%

-

3.0%

1:30

AUD

Employment Change (APR)

15.5K

-5.0K

37.6K (R-)

1:30

AUD

Unemployment Rate (APR)

4.9%

5.3%

5.2%

1:30

AUD

Full Time Employment Change (APR)

-10.5K

-

10.6K (R-)

1:30

AUD

Part Time Employment Change (APR)

26.0K

27.0K (R-)

1:30

AUD

Participation Rate (APR)

65.2%

65.4%

65.4%

2:00

JPY

Tokyo Avg Office Vacancies (%) (APR)

9.23

-

9.04

3:00

CNY

Trade Balance ($) (APR)

18.42B

7.93B

5.35B

3:00

CNY

Exports (YoY) (APR)

4.9%

9.1%

8.9%

3:00

CNY

Imports (YoY) (APR)

0.4%

12.5%

5.3%

4:30

JPY

Bankruptcies (YoY) (APR)

-6.7%

-

-1.9%

5:00

JPY

Eco Watchers Survey: Outlook (APR)

50.9

-

49.7

5:00

JPY

Eco Watchers Survey: Current (APR)

50.9

-

51.8

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:45

EUR

French Industrial Production (MoM) (MAR)

-0.3%

0.3%

Low

6:45

EUR

French Industrial Production (YoY) (MAR)

-1.3%

-1.9%

Low

6:45

EUR

French Central Govt Balance (€) (MAR)

-

-24.2B

Low

6:45

EUR

French Manufacturing Production (MoM) (MAR)

-0.2%

-1.3%

Low

6:45

EUR

French Manufacturing Production (YoY) (MAR)

-2.8%

-3.7%

Low

8:00

EUR

ECB Publishes May Monthly Report

-

-

High

8:00

EUR

Italian Industrial Production sa (MoM) (MAR)

0.1%

-0.7%

Low

8:00

EUR

Italian Industrial Production wda (YoY) (MAR)

-6.2%

-6.8%

Low

8:00

EUR

Italian Industrial Production nsa (YoY) (MAR)

-

-3.5%

Low

8:30

GBP

Industrial Production (YoY) (MAR)

-2.6%

-2.3%

Medium

8:30

GBP

Industrial Production (MoM) (MAR)

-0.3%

0.4%

Medium

8:30

GBP

Manufacturing Production (MoM) (MAR)

0.5%

-1.0%

Medium

8:30

GBP

Manufacturing Production (YoY) (MAR)

-1.3%

-1.4%

Medium

11:00

GBP

BOE Asset Purchase Target (£)

325B

325B

High

11:00

GBP

Bank of England Rate Decision

0.5%

0.5%

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2891

1.3000

GBPUSD

1.6076

1.6215

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

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

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10 May 2012 06:21 GMT