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British Pound Gains on BOE Comments, Canadian Dollar Drops on Oil

British Pound Gains on BOE Comments, Canadian Dollar Drops on Oil

2015-08-17 08:39:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

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The British Pound outperformed in overnight trade following hawkish comments from Bank of England official Kristin Forbes. A member of the rate-setting MPC committee, Forbes said the UK is in a “solid recovery” and warned that the benchmark policy rate will need to rise before headline inflation hits the target 2 percent. She added that keeping rates low for too long carries distortion risks.

The US Dollar likewise advanced, rising alongside prices for Treasury securities ahead of an auction of 3- and 6-month bills later in the day. The near-term tenor of the paper on offer suggests traders may get a sense of the markets’ Fed rate hike bets in the borrowing costs prevailing at the debt sale.

Signs of robust demand suggest investors are betting the central bank will prove to be relatively dovish, keeping rates low. While the greenback rose considering the assets on offer are denominated in USD terms, the move seems unlikely to have follow-through considering the longer-term negative implications of a more accommodative FOMC for the benchmark currency.

The Canadian Dollar proved weakest on the session, tracking crude oil prices downward. The WTI and Brent benchmarks both came under pressure following reports that OPEC may boost output to a record 33 million barrels per day (b/d) after sanctions are removed from Iran. Meanwhile, the US agreed to an exchange deal with Mexico supplying as much as 100k b/d.

The Bank of Canada has previously cited weaker oil prices to as a reason to cut interest rates. Indeed, the correlation between Canadian front-end bond yields – a proxy for the priced-in policy outlook – and the WTI contract is now 0.60 on 20-day percent-change studies.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

22:30

NZD

Performance Services Index (JUL)

56.5

-

58.1

23:01

GBP

Rightmove House Prices MoM (AUG)

-0.8%

-

0.1%

23:01

GBP

Rightmove House Prices YoY (AUG)

6.4%

-

5.1%

23:50

JPY

GDP SA QoQ (2Q P)

-0.4%

-0.5%

1.1%

23:50

JPY

GDP Annualized SA QoQ (2Q P)

-1.6%

-1.8%

4.5%

23:50

JPY

GDP Nominal SA QoQ (2Q P)

0.0%

0.1%

2.2%

23:50

JPY

GDP Deflator YoY (2Q P)

1.6%

2.1%

3.5%

23:50

JPY

GDP Private Consumption QoQ (2Q P)

-0.8%

-0.4%

0.3%

23:50

JPY

GDP Business Spending QoQ (2Q P)

-0.1%

0.0%

2.8%

European Session

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

07:00

CHF

Total Sight Deposits (AUG 14)

463.0B (A)

462.3B

Low

07:00

CHF

Domestic Sight Deposits (AUG 14)

396.0B (A)

395.8B

Low

07:15

CHF

Retail Sales Real YoY (JUN)

-0.9% (A)

-1.8%

Low

09:00

EUR

Eurozone Trade Balance SA (JUN)

23.1B

21.2B

Low

09:00

EUR

Eurozone Trade Balance NSA (JUN)

-

18.8B

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.0950

1.1041

1.1075

1.1132

1.1166

1.1223

1.1314

GBPUSD

1.5488

1.5559

1.5600

1.5630

1.5671

1.5701

1.5772

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

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