TALKING POINTS – UK GDP, BRITISH POUND, US DOLLAR, CPI, JAPAN, TRADE WAR
- British Pound unlikely to find lasting support from upbeat UK GDP data
- US Dollar may look past CPI data, taking its cues from sentiment trends
- Yen, Franc may retrace upswing on US/Japan deal averting auto tariffs
UK GDP data headlines the economic calendar in European trading hours. The on-year trend growth rate is expected to rise to 1.3 percent in the second quarter, marking the first pickup since the three months to March 2017. UK data outcomes have increasingly outperformed relative to forecasts recently, hinting that analysts’ models are understating the economy’s vigor and opening the door for an upside surprise.
Still, an upbeat result may not offer lasting support to the British Pound. Just last week, the Bank of England unambiguously signaled that Brexit-related uncertainly will probably limit scope for significant tightening of monetary policy despite the economy’s relative vigor. If the data means little for rate hike prospects, the currency’s response may amount to little beyond a bit of kneejerk volatility.
Later in the day, the spotlight turns to the US CPI report. The benchmark on-year inflation rate is expected to print at 2.9 percent in July, unchanged from the prior month. An improbably dramatic deviation from forecasts is likely needed to materially alter the Fed rate hike outlook, which might make the release something of an afterthought for the US Dollar.
Sentiment trends might prove to be a more potent catalyst. The greenback tellingly rose alongside the perennially anti-risk Yen and Swiss Franc yesterday as a barrage of worrying geopolitical headlines – notably from Turkey and Russia – weighed on emerging market assets. The tide may turn if officials from the US and Japan strike a deal averting an increase in auto import tariffs, dialing down trade war worries.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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