FX Headlines: British Pound at Risk with Carney's Speech Looking Dovish
Data out of Europe remains on the strong side but with tensions rising in Syria and uncertainty over the Fed’s monetary policy persisting, a bout of risk-aversion has gripped the globe in the final week of August.
As such, with a light economic calendar ahead in North America, traders will keep their eyes on commentary out of the UK for a catalyst in the second half of European trading.
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EURO-ZONE ECONOMIC CALENDAR
The first piece of weaker German data in several weeks has the Euro falling back slightly on Wednesday, although the reach of the miss will likely be limited in scope.
Notably, the past few weeks, the Euro has failed to appreciate substantively despite a material improvement in regional growth prospects. Accordingly, we still find the Euro’s struggles amid a generally improved backdrop to be a warning sign.
UK ECONOMIC CALENDAR
Bank of England Governor Mark Carney will give his first policy speech today, and in light of recent price action in the British Pound and UK Gilts, we are expecting a dovish tone to be struck. In the Quarterly Inflation Report released earlier this month, economic “circuit breakers” were identified that would signal a wind down of the BoE’s easing program.
However, considering the proximity of current economic conditions to the circuit breakers (+2.5% yearly CPI; 7.0% Unemployment Rate), British financial instruments have responded as if the end of easing was announced as opposed to reality – forward guidance was extended to reflect the desire to keep interest rates tethered as close to zero for as long as possible.
While the initial commentary from Governor Carney may prove to be dovish, it will take a concerted shift in his policy stance – even more dovish – in order for the desire effect to be achieved: softer UK yields. Accordingly, barring an overtly dovish tone, it is possible that the Sterling sets up an opportunity to buy the dip later today.
SWISS ECONOMIC CALENDAR
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--- Written by Christopher Vecchio, Currency Analyst
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