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Pound May Rise as BOE Governor Carney Weighs in on Brexit

Pound May Rise as BOE Governor Carney Weighs in on Brexit

Ilya Spivak,

Talking Points:

  • British Pound may rise as Carney testimony boosts argument against Brexit
  • Revised Eurozone GDP data may pass without fanfare as markets await ECB
  • Commodity Dollars drop, Yen gains as Chinese data amplifies risk aversion

The Bank of England will be drawn into the debate surrounding UK membership in the European Union as Governor Mark Carney testifies on the matter before Parliament’s Treasury Select Committee. The government has announced that it will put so-called “Brexit” to a referendum on June 23. Carney will be put on the spot to give a view on the economic implications of a rupture with the EU, including potentially adverse shocks to trade and the financial sector.

The BOE issued a report on the impact of EU membership on the central bank’s ability to meet its objectives back in October but carefully avoided weighing in on the politics of the in/out decision. Similarly non-specific rhetoric this time around may be both appropriate and indirectly supportive for the anti-Brexit argument.

First, an exit by a country of the UK’s size and stature would be unprecedented. Needless to say, this means the precise near-term consequences are extremely difficult to confidently predict. Furthermore, if the UK votes to leave the regional bloc, a renegotiation of the two entities’ relationship will follow for a period of up to two years. This will likely prolong and compound uncertainty, which threatens the economy as activity ramps down until greater clarity emerges.

Carney’s articulation of this relatively simple premise may play into the hands of Mr Cameron, who is advocating in favor of the status quo. The uncertainty inherent in a Brexit scenario may spook fence-sitters and push them to side with the government’s position. The latest YouGov voters’ poll shows a 40-37 percent preference for staying in the EU, with 18 percent undecided. A cautious if non-specific tone from the head of the central bank may well push a pivotal proportion of the third group into the “stay” camp. Expectations of such an outcome following Carney’s testimony may boost the British Pound.

Turning to the data docket, a revised set of fourth-quarter Eurozone GDP figures takes top billing.Traders are unlikely to commit to a strong directional bias on the basis of the release however as they await the ECB rate decision later in the week. The outcomes of US debt auctions offering 4-week notes and 3-year bills may also be of note. A pickup in yields against a backdrop of firm demand may imply a hawkish shift in FOMC bets, which could fuel risk aversion.

The Australian, Canadian and New Zealand Dollars underperformed in overnight trade, tracking stock prices downward. The anti-risk Japanese Yen traded higher. Asian equity bourses traded broadly lower in a move that looked corrective at first, reflecting digestion after the MSCI Asia Pacific regional benchmark hit a two-month high on Friday. The down move found added fuel after a disappointing set of Chinese trade figures that showed exports fell 25.4 percent year-on-year in February, the most since May 2009.

What were the most important lessons DailyFX analysts learned in 2015? Find out here !

Asia Session

21:00NZDANZ Truckometer Heavy (MoM) (FEB)1.6%--4.3%
21:45NZDMfg Activity Volume (QoQ) (4Q)1.3%-3.3%
21:45NZDMfg Activity SA (QoQ) (4Q)-1.9%-3.6%
22:30AUDWeekly Consumer Confidence Index (MAR 6)114.8-111.3
23:20AUDRBA's Lowe Speaks in Adelaide ---
23:50JPYGDP SA (QoQ) (4Q F)-0.3%-0.4%-0.4%
23:50JPYGDP Annualized SA (QoQ) (4Q F)-1.1%-1.5%-1.4%
23:50JPYGDP Nominal SA (QoQ) (4Q F)-0.2%-0.3%-0.3%
23:50JPYGDP Deflator (YoY) (4Q F)1.5%1.5%1.5%
23:50JPYGDP Private Consumption (QoQ) (4Q F)-0.9%-0.8%-0.8%
23:50JPYGDP Business Spending (QoQ) (4Q F)1.5%1.2%1.4%
23:50JPYBoP Current Account Balance (¥) (JAN)520.8B715.5B960.7B
23:50JPYBoP Current Account Adjusted (¥) (JAN)1492.4B1654.8B1693.4B
23:50JPYTrade Balance BoP Basis (¥) (JAN)-411.0B-530.0B188.7B
23:50JPYBank Lending Incl Trusts (YoY) (FEB)2.2%-2.3%
23:50JPYBank Lending Ex-Trusts (YoY) (FEB)2.2%2.4%2.4%
00:01GBPBRC Sales Like-For-Like (YoY) (FEB)0.1%0.5%2.6%
00:30AUDNAB Business Conditions (FEB)8.0-5.0
00:30AUDNAB Business Confidence (FEB)3.0-3.0
02:37CNYExports (YoY) (CNY) (FEB)-20.6%-11.3%-6.6%
02:37CNYImports (YoY) (CNY) (FEB)-8.0%-11.7%-14.4%
02:37CNYTrade Balance (CNY) (FEB)209.50B341.00B406.20B
02:42CNYTrade Balance ($) (FEB)$32.59B$51.00B$63.29B
02:42CNYExports (YoY) ($) (FEB)-25.4%-14.5%-11.2%
02:42CNYImports (YoY) ($) (FEB)-13.8%-12.0%-18.8%
04:30JPYBankruptcies (YoY) (FEB)4.47%--6.38%
05:00JPYConsumer Confidence Index (FEB)
06:00JPYEco Watchers Survey Current (FEB)44.647.446.6
06:00JPYEco Watchers Survey Outlook (FEB)48.249.349.5

European Session

06:45CHFUnemployment Rate (FEB)3.8%3.8%Low
06:45CHFUnemployment Rate SA (FEB)3.5%3.4%Low
07:00EURGerman Industrial Production (MoM) (JAN)0.5%-1.2%Low
07:00EURGerman Industrial Production (YoY) (JAN)-1.6%-2.2%Low
08:15CHFCPI (MoM) (FEB)-0.1%-0.4%Medium
08:15CHFCPI (YoY) (FEB)-1.1%-1.3%Medium
08:15CHFCPI - EU Harmonized (MoM) (FEB)--0.7%Medium
08:15CHFCPI - EU Harmonized (YoY) (FEB)--1.5%Medium
09:15GBPBOE’s Carney, Cunliffe Testify on Brexit--High
10:00EUREurozone GDP (QoQ) (4Q P)0.3%0.3%Medium
10:00EUREurozone GDP (YoY) (4Q P)1.5%1.5%Medium
10:00EUREurozone Gross Fix Capital Inv (QoQ) (4Q)0.6%0.0%Low
10:00EUREurozone Gov’t Expenditure (QoQ) (4Q)0.4%0.6%Low
10:00EUREurozone Household Cons (QoQ) (4Q)0.3%0.4%Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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