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British Pound Seems Biased Upward on BOE Inflation Report

British Pound Seems Biased Upward on BOE Inflation Report

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • British Pound seems biased upward on Bank of England Inflation Report
  • Aussie Dollar drops as consumer inflation outlook drops to 11-month low
  • Yen down, Nikkei higher after dovish comments from BOJ Gov. Kuroda

All eyes are on the Bank of England as traders eagerly look to comb through an updated Quarterly Inflation Report for clues about officials' views on the likely policy implications of June’s referendum on the UK’s continued membership in the European Union.

An ominous tone may be seen as likely to influence voters to opt forstaying within the EU, which may boost the British Pound. Rhetoric suggesting the central bank does not see the poll as a major factor in shaping near-term rate hike chances could produce similarly GBP-supportive conditions.

A significant “Brexit” risk premium is probably priced in at this point. This means the BOE would need to explicitly link a vote to leave the EU with a dovish policy turn to trigger outsized Sterling weakness. Such a scenario seems unlikely in that it risks significantly politicizing the Bank, hurting its credibility.

The Australian Dollar underperformed in overnight trade after a gauge of consumer inflation expectations hit an 11-month low, stoking RBA rate cut speculation. As it stands, traders price in a 22 percent probability of a 25 basis point cut at next month’s meeting.

The Yen declined while Japan’s Nikkei 225 stock index traded higher following dovish comments from Bank of Japan Governor Haruhiko Kuroda. The central bank chief stressed policymakers’ readiness to boost stimulus and warned that tightening may not occur within his tenure.

Are FXCM traders buying or selling the British Pound? Find out here !

Asia Session

GMTCCYEVENTACTEXPPREV
22:30NZDBusinessNZ Manufacturing PMI (APR)56.5-54.7
22:45NZDFood Prices (MoM) (APR)0.3%-0.5%
23:01GBPRICS House Price Balance (APR)41%35%42%
23:50JPYBOJ Summary of April 2016 Meeting ---
23:50JPYBoP Current Account Balance (MAR)¥2980.4b¥2965.6b¥2434.9b
23:50JPYBoP Current Account Adjusted (MAR)¥1893.6b¥1910.0b¥1686.6b
23:50JPYTrade Balance BoP Basis (MAR)¥927.2b¥906.7b¥425.2b
23:50JPYBank Lending Incl Trusts (YoY) (APR)2.2%-2.0%
23:50JPYBank Lending Ex-Trusts (YoY) (APR)2.2%1.9%2.0%
1:00AUDConsumer Inflation Expectation (MAY)3.2%-3.6%
1:00JPYBOJ's Kuroda at Parliament Committee ---
1:30AUDCredit Card Balances (MAR)A$51.8b-A$51.9b
1:30AUDCredit Card Purchases (MAR)A$25.5b-A$25.2b
2:00JPYTokyo Avg Office Vacancies (APR)4.23-4.34
4:30JPYBankruptcies (YoY) (APR)-7.08%--13.15%
5:00JPYEco Watchers Survey Current (APR)43.544.045.4
5:00JPYEco Watchers Survey Outlook (APR)45.546.246.7

European Session

GMTCCYEVENTEXP/ACTPREVIMPACT
6:00EURGerman Wholesale Price Index (MoM) (APR)0.3% (A)0.3%Low
6:00EURGerman Wholesale Price Index (YoY) (APR)-2.7% (A)-2.6%Low
6:45EURFrance CPI - EU Harmonized (MoM) (APR F)0.1% (A)0.1%Low
6:45EURFrance CPI - EU Harmonized (YoY) (APR F)-0.1% (A)-0.1%Low
6:45EURFrance CPI (MoM) (APR F)0.1% (A)0.1%Low
6:45EURFrance CPI (YoY) (APR F)-0.2% (A)-0.2%Low
6:45EURFrance CPI Ex-Tobacco Index (APR)100.09 (A)100.02Low
9:00EUREurozone Industrial Production (MoM) (MAR)0.0%-0.8%Medium
9:00EUREurozone Industrial Production (YoY) (MAR)0.9%0.8%Medium
11:00GBPBank of England Bank Rate 0.50%0.50%High
11:00GBPBOE Asset Purchase Target (MAY)£375b£375bHigh
11:30GBPBOE's Carney Holds Press Conference 0.00%-0.80%High

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EUR/USD1.12581.13361.13811.14141.14591.14921.1570
GBP/USD1.42581.43511.43991.44441.44921.45371.4630

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

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