Pound May Overlook PMI Data, Euro and Franc Eye Central Bank Comments

Talking Points:

• Pound May Overlook PMI Data as Traders Await BOE Policy Decision
• Euro and Franc Looking to ECB, SNB Commentary for Direction Clues
• Australian, NZ Dollars Rise on Fading RBA, RBNZ Rate Cut Chances

UK Construction PMI data headlines the economic calendar in European trading hours. A print of 58.8 is expected to mark the first slowdown in homebuilding sector activity in three months. Timid follow-through from the British Pound on a dramatically better-than-expected Manufacturing PMI print yesterday hints a similarly lackluster may be in the cards this time around. Traders may be unwilling to commit to a firm directional bias ahead of the much-anticipated BOE policy announcement later in the week.

Later in the day, the spotlight will shift to scheduled remarks from ECB President Mario Draghi. The markets will look for clues hinting at the likelihood for added stimulus in December as well as the method by which this might be delivered. Options include expanding the size of QE asset purchases, extending the program’s end date beyond September 2016 or making it open-ended, as well as pushing the deposit rate deeper into negative territory.

Remarks from SNB Governor Thomas Jordan are also on tap. On this front, traders will be looking for clues about further measures the Swiss central bank may take to keep up with the dovish push at the ECB in the event that the Eurozone monetary authority opts for greater easing.

The Australian Dollar outperformed in overnight trade after the RBA opted against an interest rate cut and noted that “the prospects for an improvement in economic conditions had firmed a little over recent months”. This hinted that policymakers’ appetite for easing may be waning in the broader sense, limiting scope for another reduction in borrowing costs in the months ahead.

RBA Governor Glenn Stevens offered countervailing comments, saying some of the central bank’s decision-makers envisioned that the outlook for inflation may afford scope for more accommodative policy. This gave investors a bit of pause in the immediate aftermath of the policy announcement, but a subsequent surge in Australian bond yields cemented the perception that investors interpreted the outcome as a shift away from the dovish end of the policy spectrum.

The New Zealand Dollar likewise traded higher in a move that was also accompanied by rising front-end bond yields, pointing to moderating RBNZ rate cut speculation. The shift may have followed data showing house prices rose 14 percent year-on-year in October, the most since March 2006. Governor Graeme Wheeler has expressed concern about fueling front in the housing market by easing policy further. With that in mind, traders may have interpreted the upbeat print as likely to delay stimulus expansion

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

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