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Pound May Fall on Soft CPI Data But Follow-Through Could Be Lacking

Pound May Fall on Soft CPI Data But Follow-Through Could Be Lacking

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Pound May Decline on Soft UK CPI But Follow-Though May Be Lacking
  • NZ Dollar Swoons as Weak 2Q PPI Data Dents RBNZ Rate Hike Outlook
  • Aussie Dollar Gains on Risk Appetite Swell After Status-Quo RBA Minutes

UK CPI figures headline the economic in European hours. Consensus forecasts suggest the headline year-on-year inflation rate will slow to 1.8 percent in July, marking a slowdown from the 1.9 percent print recorded in the prior month. UK price-growth data has tended to underperform relative to analysts’ expectations since the beginning of the year, opening the door for a downside surprise.

Such an outcome is likely to weigh on BOE rate hike speculation, pushing the British Pound lower. Follow-through may be limited however. Sterling has been fallen for six consecutive weeks alongside front-end bond yields, suggesting markets have been trimming tightening bets for some time now. Such one-sided price action warns that big-splash volatility risk may be asymmetrically tilting to the upside in the near term.

The New Zealand Dollar underperformed in Asian trading hours, sliding as much as 0.6 percent on average against its leading counterparts. The move reflected softening RBNZ rate hike expectations after second-quarter PPI data proved soft, as expected. Indeed, the Kiwi’s slide tracked a drop in the benchmark New Zealand 10-year bond yield.

The Australian Dollar rose after the release of minutes from Augusts’ RBA meeting. While the document didn’t contain anything particularly novel, the passing of the day’s event risk seemed to clear the way for the sentiment-linked Aussie to catch up with building risk appetite overnight. The MSCI Asia Pacific regional stock index added 0.6 percent, hinting at stronger demand for return-seeking assets (including the Australian unit).

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

PPI Output (QoQ) (2Q)

-0.5%

-

0.9%

22:45

NZD

PPI Input (QoQ) (2Q)

-1.0%

-

1.0%

1:30

AUD

RBA August Meeting Minutes

-

-

-

3:00

NZD

RBNZ 2yr Inflation Expectation (3Q)

2.23%

-

2.36%

5:00

JPY

Leading Index (JUN F)

105.9

-

105.5

5:00

JPY

Coincident Index (JUN F)

109.7

-

109.4

5:30

JPY

Tokyo Dept Store Sales (YoY) (JUL)

-1.4%

-

-4.1%

5:30

JPY

Nationwide Dept Store Sales (YoY) (JUL)

-2.5%

-

-4.6%

6:00

JPY

Machine Tool Orders (YoY) (JUN F)

-

37.7%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:00

EUR

Eurozone Current Account s.a. (€) (JUN)

-

19.5B

Low

8:00

EUR

Eurozone Current Account n.s.a. (€) (JUN)

-

8.9B

Low

8:30

GBP

CPI (MoM) (JUL)

-0.2%

0.2%

High

8:30

GBP

CPI (YoY) (JUL)

1.8%

1.9%

High

8:30

GBP

Core CPI (YoY) (JUL)

1.9%

2.0%

High

8:30

GBP

RPI (MoM) (JUL)

-0.1%

0.2%

Medium

8:30

GBP

RPI (YoY) (JUL)

2.6%

2.6%

Medium

8:30

GBP

RPI Ex Mort. Int. Payments (YoY) (JUL)

2.6%

2.7%

Low

8:30

GBP

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

-1.0%

-0.8%

Low

8:30

GBP

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

-6.4%

-4.4%

Low

8:30

GBP

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

0.1%

-0.2%

Medium

8:30

GBP

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

0.0%

0.2%

Medium

8:30

GBP

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

0.0%

0.0%

Low

8:30

GBP

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

0.9%

1.0%

Low

8:30

GBP

ONS House Prices (YoY) (JUL)

10.2%

10.5%

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.3280

1.3326

1.3345

1.3372

1.3391

1.3418

1.3464

GBPUSD

1.6675

1.6701

1.6714

1.6727

1.6740

1.6753

1.6779

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

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