Forex: Pound Unlikely to Stir on CPI, Fiscal Cliff Chatter Key

2012-12-18 06:54:00 Ilya Spivak, Head Strategist, APAC

The British Pound is unlikely to see lasting response to steady inflation data. Forex markets remain focused on chatter surrounding “fiscal cliff” negotiations.

Talking Points

British Pound Likely to Look Past Steady UK Inflation Data Set
RBA Minutes Link Rate Cut to Softening Labor Market Outlook
Aussie, NZ Dollars May Recover as S&P 500 Futures Rise in Asia

November’s UK Consumer Price Index report headlines the economic calendar in European trading hours. Expectations suggest the benchmark inflation rate will hold unchanged at 2.7 percent. Steady year-on-year PPI and RPI readings over the same period are seen reinforcing well-anchored price-growth trends. This suggests the data set is unlikely to materially unhinge the wait-and-see posture at the Bank of England, at least in the near term. As such, the response from the British Pound is likely to be fairly muted absent a major deviation from economists’ forecasts.

Minutes from December’s Reserve Bank of Australia policy meeting said the central bank saw a softening labor market as giving scope for its latest 25bps interest rate cut. The central bank added that resource-sector investment was nearing a peak while the inflation outlook afforded scope for easier policy to support demand. Traders now price in a 63 percent probability of another rate cut in February. Meanwhile, Chinese FDI fell 5.4 percent in November compared with a year prior, marking deterioration after October’s 0.24 percent decline.

The Australian and New Zealand Dollars underperformed in overnight trade, down as much as 0.2 each against their top counterparts (on average). A uniquely identifiable catalyst seemed absent. Weakness may prove limited as S&P 500 index futures point higher in late Asian trade, hinting supportive risk appetite trends may underpin a recovery in the sentiment-linked currencies. On-going US “fiscal cliff” negotiations remain a wildcard, with news-flow indicative of an emerging accord likely to boost the risk-on mood and weigh on the US Dollar (and vice versa).

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
23:00	AUD	Conference Board Leading Index (OCT)	0.2%	-	-0.4% (R-)
0:30	AUD	RBA December Meeting Minutes	-	-	-
2:00	CNY	Actual FDI (YoY) (NOV)	-5.4%	-3.1%	-0.2%
5:30	JPY	Nationwide Department Store Sales (YoY) (NOV)	2.2%	-	-2.4%
5:30	JPY	Tokyo Department Store Sales (YoY) (NOV)	3.1%	-	-1.5%

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
9:30	GBP	PPI Input n.s.a. (MoM) (NOV)	0.1%	0.4%	Low
9:30	GBP	PPI Input n.s.a. (YoY) (NOV)	-0.1%	0.1%	Low
9:30	GBP	PPI Output n.s.a. (MoM) (NOV)	0.2%	0.1%	Medium
9:30	GBP	PPI Output n.s.a. (YoY) (NOV)	2.5%	2.5%	Medium
9:30	GBP	PPI Output Core n.s.a. (MoM) (NOV)	0.1%	0.1%	Low
9:30	GBP	PPI Output Core n.s.a. (YoY) (NOV)	1.5%	1.4%	Low
9:30	GBP	Retail Price Index (NOV)	246.2	245.6	Low
9:30	GBP	Retail Price Index (MoM) (NOV)	0.2%	0.6%	Medium
9:30	GBP	Retail Price Index (YoY) (NOV)	3.2%	3.2%	Medium
9:30	GBP	RPI Ex Mort Int.Payments (YoY) (NOV)	3.1%	3.1%	Low
9:30	GBP	ONS House Prices (YoY) (OCT)	-	1.7%	Low
9:30	GBP	Consumer Price Index (MoM) (NOV)	0.2%	0.5%	High
9:30	GBP	Consumer Price Index (YoY) (NOV)	2.7%	2.7%	High
9:30	GBP	Core Consumer Price Index (YoY) (NOV)	2.7%	2.6%	High
10:00	EUR	Italian Current Account (€) (OCT)	-	-2581M	Low