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British Pound May Fall as Soft CPI Data Undercuts BOE Rate Hike Bets

British Pound May Fall as Soft CPI Data Undercuts BOE Rate Hike Bets

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • British Pound May Fall as Soft June CPI Undercuts BOE Rate Hike Bets
  • Aussie Dollar Little-Changed as July’s RBA Minutes Maintain Status Quo
  • Japanese Yen Unmoved as BOJ Keeps Monetary Policy Mix Unchanged

June’s UK CPI figures headline the economic calendar in European hours. The headline year-on-year inflation rate is expected to edge higher to 1.6 percent having slumped to a five-year low of 1.5 percent in the prior month. UK price-growth readings have proven increasingly disappointing over recent months. Indeed, a Citigroup gauge measuring realized inflation data outcomes relative to consensus forecasts dropped to the lowest level in nearly two decades last month. That suggests analysts are underestimating the degree of deterioration in pricing trends and opening the door for a downside surprise.

A lower-than-expected CPI print is likely to plant seeds of doubt in investors’ effervescent BOE interest rate hike expectations. A distinctively hawkish shift in Governor Carney’s rhetoric in recent weeks has been taken at face value, pushing the British Pound upward alongside front-end bond yields. UK economic data has increasingly fallen short of expectations since February however, meaning Mr. Carney is likely to have a difficult time securing a majority on nine-person MPC committee to raise the baseline interest rate even if he resigned to do so. An eye-catching miss on the baseline inflation gauge threatens to put such concerns in stark relief, forcing investors to pare back runaway tightening bets and sending Sterling lower.

The Australian Dollar was little-changed after minutes from July’s RBA policy meeting reiterated the status quo – calling for a “period of stability in interest rates” – and offered no meaningful clues on where it intends to steer thereafter. A monetary policy announcement from the Bank of Japan was likewise a non-event, leaving the Yen rudderless. Governor Haruhiko Kuroda and company maintained the plan to grow the money supply by ¥270 trillion in the current fiscal year and maintained most of their economic projections unchanged (with the exception of a slight downgrade in expected FY2014 GDP growth, from 1.1 to 1.0 percent).

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

23:01

GBP

BRC Sales Like-For-Like (YoY) (JUN)

-0.8%

1.0%

0.5%

1:30

AUD

New Motor Vehicle Sales (MoM) (JUN)

1.7%

-

0.4%

1:30

AUD

New Motor Vehicle Sales (YoY) (JUN)

-2.2%

-

-1.7%

1:30

AUD

RBA Minutes of July Meeting

-

-

-

2:16

CNY

New Yuan Loans (JUN)

1080.0B

955.0B

870.8B

2:16

CNY

M2 Money Supply (YoY) (JUN)

14.7%

13.6%

13.4%

2:16

CNY

Aggregate Financing (RMB) (JUN)

1970.0B

1425.0B

1404.5B

2:18

CNY

Foreign Reserves ($) (JUN)

3990.0B

3980.0B

3948.1B

2:19

CNY

Foreign Direct Investment (YoY) (JUN)

0.2%

-7.0%

-6.7%

2:58

JPY

BOJ 2014 Monetary Base Target (¥)

270T

270T

270T

4:00

JPY

Tokyo Condominium Sales (YoY) (JUN)

-28.3%

-13.4%

6:00

JPY

Machine Tool Orders (YoY) (JUN F)

34.2%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:15

CHF

Producer & Import Prices (YoY) (JUN)

-0.8%

-0.8%

Low

7:15

CHF

Producer & Import Prices (MoM) (JUN)

0.1%

0.1%

Low

8:30

GBP

CPI (MoM) (JUN)

-0.1%

-0.1%

High

8:30

GBP

CPI (YoY) (JUN)

1.6%

1.5%

High

8:30

GBP

Core CPI (YoY) (JUN)

1.7%

1.6%

High

8:30

GBP

RPI (MoM) (JUN)

0.0%

0.1%

Low

8:30

GBP

RPI (YoY) (JUN)

2.5%

2.4%

Low

8:30

GBP

RPI Ex Mort Int Payments (YoY) (JUN)

2.5%

2.5%

Low

8:30

GBP

PPI Input n.s.a. (MoM) (JUN)

0.1%

-0.9%

Low

8:30

GBP

PPI Input n.s.a. (YoY) (JUN)

-4.5%

-5.0%

Low

8:30

GBP

PPI Output n.s.a. (MoM) (JUN)

0.1%

-0.1%

Medium

8:30

GBP

PPI Output n.s.a. (YoY) (JUN)

0.5%

0.5%

Medium

8:30

GBP

PPI Output Core n.s.a. (MoM) (JUN)

0.0%

0.0%

Low

8:30

GBP

PPI Output Core n.s.a. (YoY) (JUN)

1.0%

1.0%

Low

8:30

GBP

ONS House Prices (YoY) (MAY)

10.1%

9.9%

Low

9:00

EUR

German ZEW Survey (Curr Situation) (JUL)

67.4

67.7

Medium

9:00

EUR

German ZEW Survey (Econ. Sentiment) (JUL)

28.2

29.8

Medium

9:00

EUR

Eurozone ZEW Survey (Econ. Sentiment) (JUL)

-

58.4

Medium

9:00

GBP

BOE's Carney, Kohn, Taylor, Bailey Testify

-

-

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.3533

1.3576

1.3597

1.3619

1.3640

1.3662

1.3705

GBPUSD

1.6951

1.7025

1.7054

1.7099

1.7128

1.7173

1.7247

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

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