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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

2016-03-08 06:43:00
Ilya Spivak, Head Strategist, APAC
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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

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

ANZ Truckometer Heavy (MoM) (FEB)

1.6%

-

-4.3%

21:45

NZD

Mfg Activity Volume (QoQ) (4Q)

1.3%

-

3.3%

21:45

NZD

Mfg Activity SA (QoQ) (4Q)

-1.9%

-

3.6%

22:30

AUD

Weekly Consumer Confidence Index (MAR 6)

114.8

-

111.3

23:20

AUD

RBA's Lowe Speaks in Adelaide

-

-

-

23:50

JPY

GDP SA (QoQ) (4Q F)

-0.3%

-0.4%

-0.4%

23:50

JPY

GDP Annualized SA (QoQ) (4Q F)

-1.1%

-1.5%

-1.4%

23:50

JPY

GDP Nominal SA (QoQ) (4Q F)

-0.2%

-0.3%

-0.3%

23:50

JPY

GDP Deflator (YoY) (4Q F)

1.5%

1.5%

1.5%

23:50

JPY

GDP Private Consumption (QoQ) (4Q F)

-0.9%

-0.8%

-0.8%

23:50

JPY

GDP Business Spending (QoQ) (4Q F)

1.5%

1.2%

1.4%

23:50

JPY

BoP Current Account Balance (¥) (JAN)

520.8B

715.5B

960.7B

23:50

JPY

BoP Current Account Adjusted (¥) (JAN)

1492.4B

1654.8B

1693.4B

23:50

JPY

Trade Balance BoP Basis (¥) (JAN)

-411.0B

-530.0B

188.7B

23:50

JPY

Bank Lending Incl Trusts (YoY) (FEB)

2.2%

-

2.3%

23:50

JPY

Bank Lending Ex-Trusts (YoY) (FEB)

2.2%

2.4%

2.4%

00:01

GBP

BRC Sales Like-For-Like (YoY) (FEB)

0.1%

0.5%

2.6%

00:30

AUD

NAB Business Conditions (FEB)

8.0

-

5.0

00:30

AUD

NAB Business Confidence (FEB)

3.0

-

3.0

02:37

CNY

Exports (YoY) (CNY) (FEB)

-20.6%

-11.3%

-6.6%

02:37

CNY

Imports (YoY) (CNY) (FEB)

-8.0%

-11.7%

-14.4%

02:37

CNY

Trade Balance (CNY) (FEB)

209.50B

341.00B

406.20B

02:42

CNY

Trade Balance ($) (FEB)

$32.59B

$51.00B

$63.29B

02:42

CNY

Exports (YoY) ($) (FEB)

-25.4%

-14.5%

-11.2%

02:42

CNY

Imports (YoY) ($) (FEB)

-13.8%

-12.0%

-18.8%

04:30

JPY

Bankruptcies (YoY) (FEB)

4.47%

-

-6.38%

05:00

JPY

Consumer Confidence Index (FEB)

40.1

42.2

42.5

06:00

JPY

Eco Watchers Survey Current (FEB)

44.6

47.4

46.6

06:00

JPY

Eco Watchers Survey Outlook (FEB)

48.2

49.3

49.5

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

06:45

CHF

Unemployment Rate (FEB)

3.8%

3.8%

Low

06:45

CHF

Unemployment Rate SA (FEB)

3.5%

3.4%

Low

07:00

EUR

German Industrial Production (MoM) (JAN)

0.5%

-1.2%

Low

07:00

EUR

German Industrial Production (YoY) (JAN)

-1.6%

-2.2%

Low

08:15

CHF

CPI (MoM) (FEB)

-0.1%

-0.4%

Medium

08:15

CHF

CPI (YoY) (FEB)

-1.1%

-1.3%

Medium

08:15

CHF

CPI - EU Harmonized (MoM) (FEB)

-

-0.7%

Medium

08:15

CHF

CPI - EU Harmonized (YoY) (FEB)

-

-1.5%

Medium

09:15

GBP

BOE’s Carney, Cunliffe Testify on Brexit

-

-

High

10:00

EUR

Eurozone GDP (QoQ) (4Q P)

0.3%

0.3%

Medium

10:00

EUR

Eurozone GDP (YoY) (4Q P)

1.5%

1.5%

Medium

10:00

EUR

Eurozone Gross Fix Capital Inv (QoQ) (4Q)

0.6%

0.0%

Low

10:00

EUR

Eurozone Gov’t Expenditure (QoQ) (4Q)

0.4%

0.6%

Low

10:00

EUR

Eurozone Household Cons (QoQ) (4Q)

0.3%

0.4%

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.0821

1.0907

1.0961

1.0993

1.1047

1.1079

1.1165

GBP/USD

1.3928

1.4078

1.4171

1.4228

1.4321

1.4378

1.4528

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

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