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Pound May Rise as US Dollar Falls on Bank of England, Fed Testimony

Pound May Rise as US Dollar Falls on Bank of England, Fed Testimony

Talking Points:

Bank of England monetary policy expectations will be in focus in European trading hours as Governor Mark Carney, Deputy Governor Ben Broadbent and MPC committee member Martin Weale testify about the latest quarterly Inflation Report to Parliament’s Treasury Committee. The hawkish-sounding document triggered a rebuilding of rate hike expectations (as expected) when it was unveiled and more of the same may boost the British Pound. We are now long GBPUSD and short EURGBP.

Later in the day, the spotlight turns to Federal Reserve Chair Janet Yellen, who is due to deliver her semi-annual Congressional testimony on monetary policy and the global economic outlook. As with last week’s publication of minutes from January’s FOMC meeting, the outing may carry a disproportionally higher risk of diminishing Fed rate hike bets versus the alternative.

The US Dollar has been unable to rise even when key economic data proved clearly supportive (like January’s payrolls report) while speculative net-long USD positioning is near a record high. On balance, this warns that the “policy divergence” narrative that propelled the greenback higher since mid-2014 may be running out of fresh fodder. If Yellen restates recently voiced worries about an increasingly wobbly global environment, that may pour cold water on tightening speculation and send the US unit downward.

The New Zealand Dollar underperformed in overnight trade, falling as much as 0.6 percent on average against the majors, after an RBNZ survey of inflation expectations showed businesses’ two-year outlook put price growth at a 15-year low of 1.8 percent. The Kiwi’s slide tracked a drop in front-end yields, hinting the drop in price growth bets weighed on interest rate hike prospects.

The Australian and Canadian Dollars followed their commodity bloc counterpart downward, losing as much as 0.3 and 0.2 percent respectively. Meanwhile, the Yen declined as Japan’s benchmark Nikkei 225 stock index advanced, undermining demand for the safety-linked currency.


Asia Session

22:30AUDANZ Roy Morgan Weekly Consumer Conf110.8-109.8
23:50JPYPPI Services (YoY) (JAN)3.4%3.6%3.5%
2:00NZDRBNZ 2yr Inflation Expectation (1Q)1.8%-2.1%
5:00JPYSmall Business Confidence (FEB)46.547.046.3

European Session

7:00EURGerman GDP s.a. (QoQ) (4Q F)0.7%0.7%Medium
7:00EURGerman GDP w.d.a (YoY) (4Q F)1.4%1.4%Medium
7:00EURGerman GDP n.s.a (YoY) (4Q F)1.6%1.6%Medium
7:00EURGerman Private Consumption (QoQ) (4Q)0.7%0.7%Low
7:00EURGerman Government Spending (QoQ) (4Q)0.2%0.6%Low
7:00EURGerman Capital Investment (QoQ) (4Q)0.8%-0.9%Low
7:00EURGerman Construction Investment (QoQ) (4Q)1.0%-0.3%Low
7:00EURGerman Domestic Demand (QoQ) (4Q)0.6%-0.2%Low
7:00EURGerman Exports (QoQ) (4Q)1.2%1.9%Low
7:00EURGerman Imports (QoQ) (4Q)1.0%1.7%Low
7:45EURFrench Business Confidence (FEB)9594Low
7:45EURFrench Manufacturing Confidence (FEB)9999Low
7:45EURFrench Production Outlook Indicator (FEB)--11Low
7:45EURFrench Own-Company Production Outlook (FEB)-13Low
10:00EURItaly Current Account Balance (DEC)-3482MLow
10:00GBPBOE's Carney, MPC Members Testify on QIR--High
10:00EUREurozone CPI (MoM) (JAN)-1.6%-0.1%Medium
10:00EUREurozone CPI (YoY) (JAN F)-0.6%-0.6%Medium
10:00EUREurozone CPI Core (YoY) (JAN F)0.6%0.6%Medium
14:00EURECB’s Draghi Speaks in Frankfurt--High

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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