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Pound May Fall if Hawkish Bank of England Minority Does Not Grow

Pound May Fall if Hawkish Bank of England Minority Does Not Grow

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • British Pound May Decline if Hawkish BOE MPC Minority Does Not Expand
  • Aussie Dollar Erases Intraday Losses as Jobs Data Trims RBA Rate Cut Bets
  • NZ Dollar Slumps on Dovish RBNZ Rhetoric, Yen Drops After 5yr Bond Sale

A monetary policy announcement from the Bank of England headlines the economic calendar in European hours. Recent comments from BOE Governor Mark Carney and MPC member Kristin Forbes struck a hawkish tone. Carney was dismissive of the impact of recent volatility on the Bank’s rate-hike calculus while Forbes cautioned against the adverse effects of keeping borrowing costs low for too long. If such rhetoric does not translate into a larger hawkish minority on the policy-setting committee, with at least one more vote for tightening on top of Ian McCafferty’s sole dissent last month, the British Pound may fall. A hawkish tally of 3 or more votes stands to send the UK unit higher however.

The Australian Dollar erased intraday losses sustained as risk aversion in overnight trade weighed on the sentiment-linked currency following the release of upbeat jobs data. Augusts’ Employment report showed the economy added a net 17.4K jobs last month, topping estimates calling for a 5k increase. The Aussie rose alongside front-end bond yields, suggesting the rosy figures weighed against RBA interest rate cut speculation.

The New Zealand Dollar tumbled following the outcome of the RBNZ monetary policy meeting. While the announcement of another 25 basis point interest rate cut was widely expected and likely priced in before the results of the sit-down crossed the wires, the dovish tone of the accompanying rhetoric weighed heavily on the exchange rate. The central bank did not mince words, saying “some further easing [of the benchmark lending rate] seems likely.”

The Japanese Yen fell despite the markets risk-off mood, a disposition that might have been expected to boost the typically safety-linked currency. The move lower followed the outcome of a five-year bond sale where yields fell to 0.067 percent, the lowest since January. The Canadian Dollar advanced amid the aftermath of the BOC rate decision earlier in the day. Governor Stephen Poloz and company noted recent weakness in commodity prices and China-linked market instability but struck a notably sanguine tone, suggesting the central bank is in no hurry to offer further stimulus.

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Asia Session

GMTCCYEVENTACTEXPPREV
21:00NZDRBNZ Official Cash Rate (SEP 10)2.75%2.75%3.0%
22:45NZDCard Spending Retail (MoM) (AUG)0.5%0.3%0.4%
22:45NZDCard Spending Total (MoM) (AUG)0.1%-1.0%
23:01GBPRICS House Price Balance (AUG)53.0%46.0%44.0%
23:50JPYMachine Orders (MoM) (JUL)-3.6%3.0%-7.9%
23:50JPYMachine Orders (YoY) (JUL)2.8%10.3%16.6%
23:50JPYPPI (MoM) (AUG)-0.6%-0.4%-0.3%
23:50JPYPPI (YoY) (AUG)-3.6%-3.3%-3.1%
00:01NZDREINZ House Sales (YoY) (AUG)41.7%-37.8%
01:00AUDConsumer Inflation Expectation (SEP)3.2%-3.7%
01:30CNYCPI (YoY) (AUG)2.0%1.8%1.6%
01:30CNYPPI (YoY) (AUG)-5.9%-5.6%-5.4%
01:30AUDEmployment Change (AUG)17.4K5.0K39.2K
01:30AUDUnemployment Rate (AUG)6.2%6.2%6.3%
01:30AUDFull Time Employment Change (AUG)11.5K-13.1K
01:30AUDPart Time Employment Change (AUG)5.9K-26.1K
01:30AUDParticipation Rate (AUG)65.0%65.0%65.1%
02:00JPYTokyo Avg Office Vacancies (AUG)4.72-4.89

European Session

GMTCCYEVENTEXPPREVIMPACT
07:00GBPHalifax House Prices (MoM) (AUG)0.5%-0.6%Medium
07:00GBPHalifax House Price (3Mths/Year) (AUG)7.9%7.9%Medium
11:00GBPBOE Asset Purchase Target (SEP)375B375BHigh
11:00GBPBank of England Bank Rate0.5%0.5%High

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.10171.11011.11541.11851.12381.12691.1353
GBPUSD1.52641.53191.53441.53741.53991.54291.5484

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

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