Talking Points:
- Euro at risk if disappointing PMI data cools ECB tightening speculation
- Pound may rise as hawkish BOE rhetoric compounds Brexit-linked gains
- US Dollar looks to January’s FOMC meeting minutes to extend recovery
The preliminary set of February’s Eurozone PMI surveys is also due to cross the wires. The region-wide composite gauge is expected to show that manufacturing- and service-sector growth slowed a bit, though this will come after activity expanded at the fastest pace in at least three years in January.
Data results from the regional bloc have steadily deteriorated relative to consensus forecasts in recent months, opening the door for a downside surprise. That might encourage further deterioration in ECB policy prospects. Priced-in tightening bets have weakened since mid-January, arresting a near-term Euro rally.
Later in the day, top BOE officials including Governor Mark Carney will testify before Parliament’s Treasury committee. They will be questioned on the latest quarterly Inflation Report (QIR), which marked a meaningful hawkish shift in official forward guidance.
As it stands, markets have priced in at least one rate hike this year and see strong odds of a second. If policymakers adopt a combative stance, that may dovetail with upbeat Brexit-related news flow to inspire a meaningful move higher from the British Pound.
Finally, minutes from January’s FOMC meeting enter the spotlight. The US Dollar rose while risk-geared assets (like stocks) and gold prices fell ahead of the release, underscoring the markets’ lingering concern about a steep Fed rate hike cycle. A confident stance on reflation prospects may bring more of the same.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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