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British Pound Volatility Likely as Bank of England Releases Meeting Minutes

British Pound Volatility Likely as Bank of England Releases Meeting Minutes

2010-07-21 04:38:00
Ilya Spivak, Sr. Currency Strategist
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Key Overnight Developments

• Australian Leading Index Slowed for Second Month, Says Westpac
Japanese Yen Bought as Currency Traders Brace for Event Risk
Euro, British Pound Keep to Narrow Ranges in Overnight Trade

Critical Levels

euroopen072120101

The Euro and the British Pound consolidated in overnight trade, the former oscillating within 20 pips of the 1.29 figure and the latter drifting sideways in a narrow band below 1.53 to the US Dollar. We remain flat EURUSD and GBPUSD but have opted to enter long USDJPY.

Asia Session Highlights

euroopen072120102

Australia’s Westpac Leading Index – a gauge of economic performance over the coming six to nine months – slowed for the second consecutive period in May, adding 6.7 percent from the previous year after rising 7.5 percent in April. Westpac chief economist Bill Evans said it appears growth in the index has peaked but added it remains “remarkably high” relative to trend growth rate of 3 percent, adding that “despite the slowing, the current growth rate… is still indicative of a stronger outlook for [the economy] in the near term.”

The Japanese Yen tracked higher against most major currencies, with traders seemingly taking a more defensive posture and trimming their carry trade exposure ahead with event risk set to heat up for the remainder of the week. Indeed, US Federal Reserve Chairman Ben Bernanke begins two days of Congressional testimony on monetary policy tomorrow while the results of Euro Zone bank stress tests designed to gauge their stability in the event of a sovereign default in the region are due on Friday.

Euro Session: What to Expect


euroopen072120103

The release of the minutes from July’s Bank of England policy meeting – the first one since the government announced an ambitious emergency budget that promised to slash the deficit by 6.3 percent of GDP by 2014-15 – takes top billing in European trading hours. The decision saw Mervyn King and company remain on hold while offering no statement to explain their reasoning. By some accounts, this could be seen as a sign of the central bank’s skepticism about the feasibility of the ruling coalition’s plans, and traders will scour the text of today’s release for confirmation. Monetary policy expectations appear to be in focus as the primary driver of the British Pound, hinting that the outcome may also stir volatility in the UK unit.

Turning to sentiment, US equity index futures are tracking 0.2 percent lower in late Asian trade, hinting the cautious tone noted overnight is likely to carry forward into European hours, boosting the safety-linked US Dollar and Japanese Yen against their major counterparts. Second-quarter results from US Bancorp, Coca Cola, Wells Fargo, and Morgan Stanley headline the earnings calendar late into the session.


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