British Pound May Be Most Responsive to UK CPI if it Disappoints

2017-12-12 06:30:00 Ilya Spivak

Talking Points:

UK CPI may be most impactful on the British Pound if it disappoints
Euro unlikely to find directional inspiration in German ZEW survey
NZ Dollar still building on gains following Orr’s RBNZ appointment

UK CPI data headlines the economic calendar in European hours. The headline on-year inflation rate is expected to stay unchanged at 3 percent for a third consecutive month. An upside surprise may offer a lift to the British Pound but seems unlikely to find lasting follow-through considering the BOE’s apparent intent to keep tightening to a minimum in the next 2-3 years, above-target price growth or no.

On the other hand, an unexpectedly soft print may have significant market-moving potential in that it would complement the MPC’s position, offering cover for policymakers to delay pulling back on stimulus. UK economic news-flow has conspicuously struggled relative to forecasts recently, opening the door for a disappointment that might send Sterling lower.

Germany’s ZEW survey of investor sentiment is also on tap, but this seems unlikely to merit a response from the Euro regardless of what comes across the wires. The outcome will almost certainly fail to inspire a change in near-term ECB monetary policy while the Governing Council waits to implement an updated QE effort and monitors the markets’ subsequent response to gauge where it steers next.

Currency market price action in the Asia Pacific trading session largely mirrored the prior day’s performance. The New Zealand Dollar continued to push higher, building on gains scored after Adrian Orr was named as the next RBNZ governor. Meanwhile, the Australian Dollar rose as US Treasury bond yields pulled back, highlighting the currency’s appeal as a yield-seeking alternative to the greenback.

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Asia Session