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Forex: Markets to Look Past BOE Rate Decision, Focus on US Budget Deal

Forex: Markets to Look Past BOE Rate Decision, Focus on US Budget Deal

Ilya Spivak, Head Strategist, APAC

Talking Points

  • Bank of England Rate Decision May be a Non-Event for British Pound
  • US Dollar Recovers Amid Rumors of a Deal to Raise the Debt Ceiling
  • Aussie, Kiwi, Yen Sold Having Outperformed Since US Gov’t Shutdown

A monetary policy announcement from the Bank of England headlines the economic calendar in European hours. Governor Mark Carney and company are expected to maintain the policy mix as-is, restating the forward guidance principles outlined in Augusts’ quarterly Inflation Report. The framework calls for the benchmark lending rate to remain at 0.5 percent while the stock of asset purchases is held at £375 billion whilst the unemployment rate is above 7 percent.

UK economic data has notably deteriorated relative to expectations since the last BOE meeting, but this seems unlikely to spur the central bank to expand easing efforts for the time being. Rather, it seems to reinforce Governor Carney’s assertion that the markets had been too optimistic about the state of the UK recovery toward the end of the third quarter.

Indeed, the British Pound rallied after the forward guidance was revealed to include an inflation-based “knockout” designed to trigger a re-evaluation of the bank’s accommodative posture. That seemed to suggest the markets believed the threshold would be crossed far sooner than policymakers envisioned, making its introduction a border-line hawkish development.

Within this framework, the recent soft patch in UK economic news-flow reinforces the BOE’s baseline outlook rather than offers the impetus for expanding policy support. This means the policy announcement may prove to be a non-event, with traders waiting for minutes from the sit-down (set to be published in two weeks) for a more in-depth assessment of the central bank’s thinking.

The US Dollar mounted an impressive recovery against all of its major currency counterparts overnight amid reports that warring parties in the US Congress may be inching toward a deal approving a short-term increase in the so-called “debt ceiling” to allow time for farther-reaching budget negotiations. The Japanese Yen as well as the Australian and New Zealand Dollars bore the brunt of the greenback’s recovery having outperformed since the onset of the US government shutdown last week.

An end to the standoff would reduce its near-term impact on economic growth even as minutes from September’s FOMC show the policy-setting committee would still prefer to begin “tapering” QE this year with an eye to wind up the program by mid-2014. Taken together, this can make for a very supportive environment for the US currency. With that said, an accord is far from confirmed rumor for now and negotiations may still break down, clouding the near-term outlook.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

ANZ Truckometer Heavy (MoM) (SEP)

-0.9

-

-1.7%

21:30

NZD

Business NZ Perf of Manuf Index (SEP)

54.3

-

57.1

23:50

JPY

Tertiary Industry Index (MoM) (AUG)

0.7%

0.4%

-0.4%

23:50

JPY

Machine Orders (MoM) (AUG)

5.4%

2.5%

0.0%

23:50

JPY

Machine Orders (YoY) (AUG)

10.3%

8.5%

6.5%

23:50

JPY

Bank Lending Banks ex-Trust (SEP)

2.3%

-

2.3%

23:50

JPY

Bank Lending incl Trusts (YoY) (SEP)

2.0%

-

2.0%

0:00

AUD

Consumer Inflation Expectation (OCT)

2.0%

-

1.5%

0:30

AUD

Employment Change (SEP)

9.1K

15.0K

-10.2K

0:30

AUD

Full Time Employment Change (SEP)

5.0K

-

-2.4K

0:30

AUD

Part Time Employment Change (SEP)

4.1K

-

-7.8K

0:30

AUD

Unemployment Rate (SEP)

5.6%

5.8%

5.8%

0:30

AUD

Participation Rate (SEP)

64.9%

65.0%

65.0%

2:00

JPY

Tokyo Avg Office Vacancies (SEP)

7.90%

-

8.16%

5:00

JPY

Consumer Confidence Index (SEP)

45.4

43.5

43.0

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

6:45

EUR

French Industrial Production (MoM) (AUG)

0.6%

-0.6%

Low

6:45

EUR

French Industrial Production (YoY) (AUG)

-2.7%

-1.8%

Low

8:00

EUR

ECB Publishes Monthly Report

-

-

Medium

8:00

EUR

Italian Industrial Production (MoM) (AUG)

0.6%

-1.1%

Low

8:00

EUR

Italian Industrial Production (YoY) (AUG)

-4.2%

-4.3%

Low

11:00

GBP

Bank of England Rate Decision

0.5%

0.5%

High

11:00

GBP

BOE Asset Purchase Target

375B

375B

High

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3300

1.3419

1.3472

1.3538

1.3591

1.3657

1.3776

GBPUSD

1.5585

1.5791

1.5873

1.5997

1.6079

1.6203

1.6409

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

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