Euro, Pound Vulnerable as UK GDP and German IFO Boost Rate Cut Bets

2012-07-25 06:30:00 Ilya Spivak, Head Strategist, APAC

Talking Points

UK GDP Slump May Weigh on Pound Amid Building Rate Cut Bets
Euro at Risk if Soft German IFO Print Bolsters ECB Easing Outlook
US Dollar Little Changed Despite Sharp Risk Aversion in Asian Trade

The preliminary set of UK Gross Domestic Product figures headlines the economic calendar in European hours. Expectations call for output to shrink for a third consecutive period in the three months through June. This may reinforce expectations of further easing that emerged following last week’s release of minutes from this month’s Bank of England policy meeting, weighing on the British Pound. Meanwhile, the German IFO survey of business confidence is expected to show sentiment fell to a 28-month low in July. The result may encourage bets on another ECB interest rate cut in August, marginally compounding downward pressure on the Euro, though follow-through could prove limited considering traders already price in an 82.5 percent chance of a further 25bps decrease.

The US Dollar was little changed against its leading counterparts in overnight trade despite a sharp drop across Asian stock exchanges that may have been expected to boost the go-to haven currency. The move in equities appeared to reflect catch-up trade to risk aversion seen on Wall Street rather than a response to something discretely new, allowing for consolidation in the FX space even as the MSCI Asia Pacific regional benchmark stock index slumped 1.2 percent. The New Zealand Dollar narrowly underperformed ahead of tomorrow’s RBNZ interest rate decision. Meanwhile the Australian Dollar was effectively flat on the session after second-quarter CPI figures printed broadly in line with expectations, offering no additional guidance for the RBA policy outlook.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
22:45	NZD	Trade Balance (NZ$) (JUN)	331M	2M	232M (R-)
22:45	NZD	Trade Balance YTD (NZ$) (JUN)	-747M	-1001M	-876M (R+)
22:45	NZD	Exports (NZ$) (JUN)	4.20B	3.83B	4.41B (R-)
22:45	NZD	Imports (NZ$) (JUN)	3.87B	3.82B	4.18B (R+)
23:50	JPY	Adj Merch Trade Balance (¥) (JUN)	-300.8B	-402.0B	-618.3B (R+)
23:50	JPY	Merch Trade Balance Total (¥) (JUN)	61.7B	-140.0B	-910.4B (R-)
23:50	JPY	Merch Trade Exports (YoY) (JUN)	-2.3	-3	10
23:50	JPY	Merch Trade Imports (YoY) (JUN)	-2.2	1.1	9.3
0:00	AUD	Conference Board Leading Index (MAY)	0.4%	-	-1.3% (R+)
1:00	AUD	DEWR Internet Skilled Vacancies (MoM) (JUN)	-1.8%	-	-1.7% (R-)
1:30	AUD	Consumer Prices Index (QoQ) (2Q)	0.5%	0.6%	0.1%
1:30	AUD	Consumer Prices Index (YoY) (2Q)	1.2%	1.3%	1.6%
1:30	AUD	RBA Trimmed Mean (QoQ) (2Q)	0.5%	0.6%	0.4% (R+)
1:30	AUD	RBA Trimmed Mean (YoY) (2Q)	2.0%	1.9%	2.2%
1:30	AUD	RBA Weighted Median (QoQ) (2Q)	0.7%	0.6%	0.4%
1:30	AUD	RBA Weighted Median (YoY) (2Q)	1.9%	1.9%	2.1%

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
6:45	EUR	French Business Survey Overall Demand (JUL)	-	3	Low
8:00	EUR	German IFO - Business Climate (JUL)	104.5	105.3	Medium
8:00	EUR	German IFO - Current Assessment (JUL)	113	113.9	Medium
8:00	EUR	German IFO – Expectations (JUL)	96.8	97.3	Medium
8:00	EUR	Italian Consumer Confidence Index (SA) (JUL)	85	85.3	Low
8:30	GBP	Gross Domestic Product (QoQ) (2Q A)	-0.2%	-0.3%	High
8:30	GBP	Gross Domestic Product (YoY) (2Q A)	-0.3%	-0.2%	High
8:30	GBP	Index of Services (MoM) (MAY)	0.2%	0.0%	Low
8:30	GBP	Index of Services (3Mo3M) (MAY)	0.3%	0.0%	Low
10:00	GBP	CBI Trends Total Orders (JUL)	-10	-11	Low
10:00	GBP	CBI Trends Selling Prices (JUL)	0	2	Low
10:00	GBP	CBI Business Optimism (JUL)	0	22	Low