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British Pound May Fall on Sanguine BOE Credit, Banking Surveys

British Pound May Fall on Sanguine BOE Credit, Banking Surveys

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • US Dollar extends drop after “dovish” testimony from Fed’s Yellen
  • Aussie and NZ Dollars outperform, Canadian Dollar corrects lower
  • British Pound may fall if credit, bank surveys strike a sanguine tone

The US Dollar traded broadly lower as the benchmark currency continued to absorb the first round of bi-annual Congressional testimony from Fed Chair Janet Yellen. She signaled concern with the recent slowdown in inflation and said rates won’t have to rise much further to get to a neutral setting, which investors interpreted as indicative of a dovish lean.

The Australian and New Zealand Dollars outperformed as moderating US rate hike expectations fueled demand for yield-seeking alternatives. Indeed, the two currencies rose inversely of a drop in rates on benchmark US Treasury bonds. The Canadian Dollar corrected lower having surged against all of its G10 FX counterparts following yesterday’s hawkish BOC policy announcement.

From here, the spotlight turns to quarterly surveys of credit conditions and bank liabilities from the Bank of England. Data from Bloomberg suggests the UK lending environment is at its most accommodative in three years, which has raised financial stability concerns and stoked speculation that policy tightening may be around the corner. The British Pound may weaken if the surveys are sanguine on this score.

Fed monetary policy will come back into focus later in the day as Chair Yellen sits down for a second day of testimony. Having appeared before a House of Representatives panel yesterday, she will now repeat the exercise in the Senate. Yellen’s prepared remarks will almost certainly mark a repeat of what she has already said but the subsequent Q&A session may yield fresh insights.

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Asia Session

British Pound May Fall on Sanguine BOE Credit, Banking Surveys

European Session

British Pound May Fall on Sanguine BOE Credit, Banking Surveys

** All times listed in GMT. See the full DailyFX economic calendar here.

--- 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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