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US Dollar May Fall if Soft Core Inflation Data Cools Fed Rate Hike Bets

US Dollar May Fall if Soft Core Inflation Data Cools Fed Rate Hike Bets

Ilya Spivak, Head Strategist, APAC

Talking Points:

The economic calendar is relatively quiet in European trading hours. A marginal improvement on German Unemployment figures is unlikely to prove formative for the Euro considering its limited implications for ECB monetary policy as the central bank prepares to launch QE next month.

The same is likely for revised of fourth-quarter UK GDP data. The British Pound did not yield a strong response to this week’s testimony from Bank of England Governor Mark Carney, suggesting near-term policy bets are well priced into the market. That means anything shy of a game-changing revision is unlikely to trigger an outsized response from Sterling.

Later in the day, the spotlight turns to January’s US CPI report. Traders will focus on the Core reading that excludes the volatile food and energy prices dismissed by Fed policymakers. This is seen putting the year-on-year inflation rate at 1.6 percent, unchanged from December. US data flow has increasingly lagged relative to forecasts in recent months however, warning of a possible downside surprise that cools FOMC rate hike bets and weighs on the US Dollar.

The Australian Dollar underperformed in overnight trade, falling as much as 0.6 percent on average against its leading counterparts. The move followed a disappointing Private Capital Expenditure report. Capex fell 2.2 percent in the fourth quarter, undershooting forecasts calling for a 1.6 percent decline.

The Aussie’s down move tracked a decline in Australia’s benchmark 10-year bond yield, suggesting soft news-flow fueled interest rate cut speculation. As it stands, investors are pricing in a 55 percent probability of a 25 basis point reduction in the baseline lending rate at next week’s RBA policy meeting.

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Asia Session

GMTCCYEVENTACTEXPPREV
21:45NZDTrade Balance (NZ$) (JAN)56M-158M-195M
21:45NZDExports (JAN)3.70B3.73B4.40B
21:45NZDImports (JAN)3.64B3.94B4.60B
21:45NZDTrade Balance 12 Mth YTD (NZ$) (JAN)-1409M-1600M-1180M
21:45NZDNet Migration SA (JAN)5540-4100
0:30AUDPrivate Capital Expenditure (4Q)-2.2%-1.6%0.6%

European Session

GMTCCYEVENTEXPPREVIMPACT
7:00EURGerman GfK Consumer Confidence (MAR)9.59.3Low
8:15CHFIndustrial Output (YoY) (4Q)--0.4%Low
8:55EURGerman Unemployment Change (FEB)-10K-9KMedium
8:55EURGerman Unemployment Rate (FEB)6.5%6.5%Medium
9:00EUREurozone M3 (YoY) (JAN)3.7%3.6%Low
9:00EUREurozone M3 3-mo Avg (JAN)3.4%3.1%Low
9:30GBPGDP (QoQ) (4Q P)0.5%0.5%Medium
9:30GBPGDP (YoY) (4Q P)2.7%2.7%Medium
9:30GBPPrivate Consumption (QoQ) (4Q P)0.8%0.9%Low
9:30GBPGovernment Spending (QoQ) (4Q P)0.2%0.3%Low
9:30GBPGross Fixed Capital Formation (QoQ) (4Q P)0.8%0.1%Low
9:30GBPExports (QoQ) (4Q P)1.1%0.6%Low
9:30GBPImports (QoQ) (4Q P)1.5%1.3%Low
9:30GBPTotal Business Investment (QoQ) (4Q P)--1.4%Low
9:30GBPTotal Business Investment (YoY) (4Q P)-5.2%Low
9:30GBPIndex of Services (MoM) (DEC)0.4%0.1%Low
9:30GBPIndex of Services (3M/3M) (DEC)0.8%0.8%Low
10:00EUREurozone Business Climate Indicator (FEB)0.230.16Low
10:00EUREurozone Industrial Confidence (FEB)-4.5-5Low
10:00EUREurozone Consumer Confidence (FEB F)-6.7-6.7Low
10:00EUREurozone Economic Confidence (FEB)102101.2Low
10:00EUREurozone Services Confidence (FEB)5.54.8Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.12561.13091.13351.13621.13881.14151.1468
GBPUSD1.53211.54131.54701.55051.55621.55971.5689

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

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