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British Pound May Overlook UK GDP Data as US Dollar Rally Resumes

British Pound May Overlook UK GDP Data as US Dollar Rally Resumes

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • NZ Dollar drops on Fonterra outlook, Canadian Dollar gains on BOC
  • British Pound may look past UK GDP revision with Brexit vote in focus
  • US Dollar may resume rally after pullback as Fed rate hike bets swell

The New Zealand Dollar underperformed in overnight trade. Prices slumped alongside three-month borrowing costs, pointing to swelling RBNZ rate cut bets as the catalyst for the selloff. The move followed a disappointing 2016-17 milk price forecast from Fonterra (NZ$4.25/Kg versus NZ$4.60-80 expected). Dairy is New Zealand’s largest export sector and cross-border sales are a major contributor to GDP for the island nation, so the announcement carried negative implications for growth and thereby opened the door for a more dovish monetary policy stance.

The US Dollar traded broadly lower as Fed rate hike bets cooled after the year-end forecast implied in futures pricing hit a two-month high in the prior session. The correction seems to have been helped along by disappointing US Markit PMI figures. The Canadian Dollar extended gains following the BOC rate decision. The central bank hinted that recent weakness will be transitory, with a slump in the second quarter to be followed by a swift recovery thereafter. This undermined on-coming easing bets, with the currency tracking front-end bond yields upward.

A revised set of first-quarter UK GDP figures headlines the economic calendar in European hours, with confirmation of the flash estimate pointing to a 0.4 percent increase expected. The release seems unlikely to command significant attention from the British Pound absent a wild deviation from forecasts as markets remain pre-occupied with the “Brexit” referendum due next month. In fact, a downward revision may actually boost the UK unit if it suggests worries about the vote are already hurting growth, playing into the “Remain” campaign’s narrative.

Later in the day, Fed rate hike speculation returns to the spotlight. Tightening bets may build anew if April’s Durable Goods Orders data outperforms, extending a two-week stretch of improvement in US data outcomes relative to expectations. Comments from Governor Jerome Powell mirroring the recent hawkish pivot in Fed rhetoric would probably encourage this dynamic, particularly considering that members of the Governing Board have tended to be more dovish than regional branch presidents. The greenback is likely to stage a broad-based advance in this scenario.

Are FX markets reflecting DailyFX analysts’ 2016 outlook? Find out here!

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

PPI Services (YoY) (APR)

0.2%

0.2%

0.2%

01:00

CNY

Swift Global Payments (CNY) (APR)

1.82%

-

1.88%

01:30

AUD

Private Capital Expenditure (1Q)

-5.2%

-3.5%

1.8%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

07:15

CHF

Industrial Output WDA (YoY) (1Q)

-

-4.5%

Low

07:15

CHF

Industry & Construction Output WDA (YoY) (1Q)

-

-4.5%

Low

08:30

GBP

BBA Loans for House Purchase (APR)

44700

45096

Low

08:30

GBP

GDP (QoQ) (1Q P)

0.4%

0.4%

Medium

08:30

GBP

GDP (YoY) (1Q P)

2.1%

2.1%

Medium

08:30

GBP

Private Consumption (QoQ) (1Q P)

0.5%

0.6%

Low

08:30

GBP

Government Spending (QoQ) (1Q P)

0.4%

0.3%

Low

08:30

GBP

Gross Fixed Capital Formation (QoQ) (1Q P)

0.9%

-1.1%

Low

08:30

GBP

Exports (QoQ) (1Q P)

0.1%

0.1%

Low

08:30

GBP

Imports (QoQ) (1Q P)

1.0%

0.9%

Low

08:30

GBP

Index of Services (Mom) (MAR)

0.2%

0.1%

Low

08:30

GBP

Index of Services (3M/3M) (MAR)

0.6%

0.7%

Low

08:30

GBP

Total Business Investment (QoQ) (1Q P)

-

-2.0%

Low

08:30

GBP

Total Business Investment (YoY) (1Q P)

-

3.0%

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.1074

1.1112

1.1134

1.1150

1.1172

1.1188

1.1226

GBP/USD

1.4422

1.4549

1.4623

1.4676

1.4750

1.4803

1.4930

--- 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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