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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

Ilya Spivak, Head Strategist, APAC

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

GMTCCYEVENTACTEXPPREV
22:30NZDPerformance Services Index (JUL)56.5-58.1
23:01GBPRightmove House Prices MoM (AUG)-0.8%-0.1%
23:01GBPRightmove House Prices YoY (AUG)6.4%-5.1%
23:50JPYGDP SA QoQ (2Q P)-0.4%-0.5%1.1%
23:50JPYGDP Annualized SA QoQ (2Q P)-1.6%-1.8%4.5%
23:50JPYGDP Nominal SA QoQ (2Q P)0.0%0.1%2.2%
23:50JPYGDP Deflator YoY (2Q P)1.6%2.1%3.5%
23:50JPYGDP Private Consumption QoQ (2Q P)-0.8%-0.4%0.3%
23:50JPYGDP Business Spending QoQ (2Q P)-0.1%0.0%2.8%

European Session

GMTCCYEVENTEXP/ACTPREVIMPACT
07:00CHFTotal Sight Deposits (AUG 14)463.0B (A)462.3BLow
07:00CHFDomestic Sight Deposits (AUG 14)396.0B (A)395.8BLow
07:15CHFRetail Sales Real YoY (JUN)-0.9% (A)-1.8%Low
09:00EUREurozone Trade Balance SA (JUN)23.1B21.2BLow
09:00EUREurozone Trade Balance NSA (JUN)-18.8BLow

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.09501.10411.10751.11321.11661.12231.1314
GBPUSD1.54881.55591.56001.56301.56711.57011.5772

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

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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