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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

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Trade Balance (NZ$) (JAN)

56M

-158M

-195M

21:45

NZD

Exports (JAN)

3.70B

3.73B

4.40B

21:45

NZD

Imports (JAN)

3.64B

3.94B

4.60B

21:45

NZD

Trade Balance 12 Mth YTD (NZ$) (JAN)

-1409M

-1600M

-1180M

21:45

NZD

Net Migration SA (JAN)

5540

-

4100

0:30

AUD

Private Capital Expenditure (4Q)

-2.2%

-1.6%

0.6%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

EUR

German GfK Consumer Confidence (MAR)

9.5

9.3

Low

8:15

CHF

Industrial Output (YoY) (4Q)

-

-0.4%

Low

8:55

EUR

German Unemployment Change (FEB)

-10K

-9K

Medium

8:55

EUR

German Unemployment Rate (FEB)

6.5%

6.5%

Medium

9:00

EUR

Eurozone M3 (YoY) (JAN)

3.7%

3.6%

Low

9:00

EUR

Eurozone M3 3-mo Avg (JAN)

3.4%

3.1%

Low

9:30

GBP

GDP (QoQ) (4Q P)

0.5%

0.5%

Medium

9:30

GBP

GDP (YoY) (4Q P)

2.7%

2.7%

Medium

9:30

GBP

Private Consumption (QoQ) (4Q P)

0.8%

0.9%

Low

9:30

GBP

Government Spending (QoQ) (4Q P)

0.2%

0.3%

Low

9:30

GBP

Gross Fixed Capital Formation (QoQ) (4Q P)

0.8%

0.1%

Low

9:30

GBP

Exports (QoQ) (4Q P)

1.1%

0.6%

Low

9:30

GBP

Imports (QoQ) (4Q P)

1.5%

1.3%

Low

9:30

GBP

Total Business Investment (QoQ) (4Q P)

-

-1.4%

Low

9:30

GBP

Total Business Investment (YoY) (4Q P)

-

5.2%

Low

9:30

GBP

Index of Services (MoM) (DEC)

0.4%

0.1%

Low

9:30

GBP

Index of Services (3M/3M) (DEC)

0.8%

0.8%

Low

10:00

EUR

Eurozone Business Climate Indicator (FEB)

0.23

0.16

Low

10:00

EUR

Eurozone Industrial Confidence (FEB)

-4.5

-5

Low

10:00

EUR

Eurozone Consumer Confidence (FEB F)

-6.7

-6.7

Low

10:00

EUR

Eurozone Economic Confidence (FEB)

102

101.2

Low

10:00

EUR

Eurozone Services Confidence (FEB)

5.5

4.8

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.1256

1.1309

1.1335

1.1362

1.1388

1.1415

1.1468

GBPUSD

1.5321

1.5413

1.5470

1.5505

1.5562

1.5597

1.5689

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

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