Euro, British Pound May Overlook Revised CPI and GDP Data

Talking Points:

• Euro, British Pound likely to overlook revised EZ CPI and UK GDP data
• US Dollar eyeing Fed-speak as speculation on likely rates path continues
• Australian Dollar declines as soft 4Q capex report fuels RBA easing bets

A revised set of fourth-quarter UK GDP figures headlines the economic calendar in European trading hours. The release is expected to show output grew 0.5 percent in the final three months of 2015, confirming flash estimates. Absent a sharp deviation from forecasts, the release seems unlikely to inspire a strong reaction from the British Pound.

The monetary policy outlook looks to be at a standstill. Speaking in testimony to Parliament’s Treasury Select Committee earlier this week, BOE Governor Mark Carney said a rate hike is still likely to be officials’ next move but broadened the timeline for “liftoff” to sometime in the next three years. Simply put, this suggests the MPC has no intention of going anywhere fast at this point, robbing the GDP print of market-moving potential.

The final revision of January’s Eurozone CPI print is also on tap. The core year-on-year inflation rate is expected to register at 1 percent, as previously reported. A downside surprise may stoke speculation about ECB stimulus expansion at next month’s policy meeting and weigh on the Euro. Needless to say, an unexpectedly upbeat result stands to produce the opposite effect. Follow-through may prove limited however as traders look ahead to tomorrow’s release of February’stimelier German CPI data.

On the Fed-speak front, comments from Atlanta and San Francisco Fed Presidents Dennis Lockhart and John Williams are due to cross the wires. Both policymakers were members of the 2015 FOMC that voted for December’s interest rate hike and projected 100 basis points in further tightening in 2016. It may be telling to see if their outlook has survived recent volatility, and why. Richmond Fed President Jeff Lacker, another voter on the 2015 FOMC, said yesterday that while it is too soon to judge the impact of this year’s risk aversion, his world view has not been materially altered.

The Australian Dollar underperformed in otherwise quiet overnight trade, dropping after the release of the fourth-quarter Private Capital Expenditure report. The Australian Bureau of Statistics projected that capex will rise by A$123.96 billion in the 2015-16 period, a drop of 17.8 percent compared with the prior year. The 2016-17 stretch is expected to see a further 19.5 percent decline, yielding expenditures of A$82.57 billion. Markets interpreted the data to hint that slowing activity will spur the RBA to cut rates, with the Aussie falling alongside front-end bond yields.

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

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