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Pound at Risk as Inflation Slows, Yen Falls as Sentiment Recovers

By , Currency Strategist
22 May 2012 06:05 GMT

Talking Points

  • British Pound at Risk as Inflation Slows to Weakest in Over 2 Years
  • Euro Looks to OECD Forecast, Consumer Confidence for Growth Cues
  • S&P 500 Futures Point to Risk-on Mood, Richmond Fed Print in Focus

UK Consumer Price Index figures headline the economic calendar in European hours. Expectations call for the headline inflation rate to decline to 3.1 percent in April, marking the lowest reading in 29 months. The core inflation reading is likewise expected to print lower at 2 percent, the weakest since November 2009. A particularly soft print may begin to feed Bank of England easing expectations and weigh on the British Pound, particularly after hopes for a more hawkish posture fizzled after last week’s release of the central bank’s quarterly Inflation Report.

Meanwhile, the OECD will release an updated set of forecasts for Eurozone economic growth. Traders will look to the outcome to help gauge the degree of regional slowdown likely in the months ahead to establish the extent to which sluggish performance can sabotage deficit-reduction efforts and amplify credit-market stress. Sharp downward revisions from prior expectations stand to weigh on the Euro. Separately, Eurozone Consumer Confidence is expected to hit a four-month low. On the issuance front, Spain is set to sell 91- and 182-day bills.

Later in the session, the spotlight turns to the Richmond Fed Manufacturing Index as traders continue to work out where the US recovery stands in May after a relatively soft outing in April. A weak outcome stands to reinforce last week’s dismal Philadelphia Fed print and weigh on the US Dollar as QE3 expectations perk up. Sizing up sentiment trends, S&P 500 stock index futures are pointing higher in late overnight trade, hinting at relatively well-supported risk appetite and promising to underpin equities-linked currencies.

The Japanese Yen underperformed for a second day in overnight trade as Asian stocks continued to recover, sapping demand for the go-to regional haven currency. The benchmark MSCI Asia Pacific stock index rose 1.3 percent, with weekend comments from Chinese Premier Wen Jiaobao that hinted Beijing may bolster stimulus efforts still cited as the catalyst in the newswires. A straight-forward relief rally after three consecutive weeks of aggressive selling amid a period of quiet on the fundamental news front seems like the larger force at work however.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

2:00

CNY

Conference Board China Leading Index (APR)

232.4

-

230.5

3:00

NZD

RBNZ 2-Year Inflation Expectation (2Q)

2.4%

-

2.5%

5:00

JPY

Supermarket Sales (YoY) (APR)

-1.9%

-

-2.4%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:00

EUR

EC OECD Economic Outlook (Table)

-

-

Medium

8:30

GBP

ONS House Prices (YoY) (MAR)

0.3%

Low

8:30

GBP

Public Finances (PSNCR) (£) (APR)

-6.0B

16.5B

Medium

8:30

GBP

PSNB ex Interventions (APR)

-20.0B

18.2B

Low

8:30

GBP

Public Sector Net Borrowing (£)

-22.8B

15.9B

Medium

8:30

GBP

Retail Price Index (APR)

242.4

240.8

Low

8:30

GBP

Retail Price Index (MoM) (APR)

0.6%

0.4%

Low

8:30

GBP

Retail Price Index (YoY) (APR)

3.4%

3.6%

Low

8:30

GBP

RPI Ex Mort Int. Payments (YoY) (APR)

3.5%

3.7%

Low

8:30

GBP

Consumer Price Index (MoM) (APR)

0.6%

0.3%

High

8:30

GBP

Consumer Price Index (YoY) (APR)

3.1%

3.5%

High

8:30

GBP

Core Consumer Price Index (YoY) (APR)

2.0%

2.5%

High

14:00

EUR

Euro-Zone Consumer Confidence (MAY A)

-20.5

-19.9

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2754

1.2853

GBPUSD

1.5758

1.5858

--- 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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22 May 2012 06:05 GMT