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Pound May Rise on UK CPI as Global Yield Reach Hurts US Dollar

Pound May Rise on UK CPI as Global Yield Reach Hurts US Dollar

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • British Pound may rise if upbeat UK CPI boosts BOE rate hike bets
  • US Dollar may fall further as markets reach for yield beyond the Fed
  • Japanese Yen broadly lower as risk appetite firms in AsiaPac trade

December’s UK CPI report headlines the economic calendar in European trading hours. The headline year-on-year inflation rate is expected to edge down to 3 percent after hitting a five-year high at 3.1 percent in November. UK data flow has tended to outperform relative to baseline forecasts in recent months, opening the door for an upside surprise that feeds BOE rate hike speculation, boosting the British Pound.

The prospect of a steeper UK tightening cycle may also encourage continued US Dollar weakness. The greenback seems increasingly sensitive to external central bank moves as capital flows race to capitalize on emerging policy pivots following in the footsteps of the relatively mature Fed stimulus withdrawal effort. FTSE 100 and S&P 500 futures are pointing higher, hinting “reach for yield” dynamics will continue.

The Japanese Yen underperformed in otherwise quiet Asia Pacific trade. Share prices rose on most regional stock exchanges, pointing to a pickup in risk appetite. That has tended to bode ill for the standby funding currency, and seems to have again. Corrective flows probably helped as well after the benchmark USD/JPY exchange rate hit a four-month low yesterday.

Where are the major currencies heading in the first quarter of 2018? See our forecasts here!

Asia Session

Pound May Rise on UK CPI as Global Yield Reach Hurts US Dollar

European Session

Pound May Rise on UK CPI as Global Yield Reach Hurts US Dollar

** 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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