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British Pound Looks to BOE to Weigh in on Brexit Impact

British Pound Looks to BOE to Weigh in on Brexit Impact

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Pound eyes BOE Inflation Report for view on Brexit policy impact
  • US retail sales, consumer confidence in focus after payrolls data
  • Chinese CPI figures may echo in market-wide sentiment trends

The British Pound is eagerly looking to the publication of the Bank of England Quarterly Inflation Report for clues about policymakers' views on the likely impact of the upcoming Brexit referendum on near-term monetary policy trends. A particularly ominous tone may be seen as likely to influence voters against voting to leave the EU, which may (somewhat counter-intuitively) boost Sterling. Rhetoric suggesting the central bank does not see the poll as a major impact on immediate rate hike chances could produce similarly GBP-supportive conditions.

US Retail Sales and University of Michigan Consumer Confidence figures as well as a busy calendar of scheduled commentary from Federal Reserve officials will feed speculation about the likely FOMC rate hike trajectory. Last week's release of April's employment statistics revealed slowing payrolls growth against a backdrop of rising wage inflation, which may point to a tightening labor market. Official rhetoric endorsing this interpretation and upbeat consumer-linked data flow may boost tightening bets, sending the US Dollar higher. As it stands, investors expect just one 25 basis point increase in the Fed Funds rate this year, with futures pricing in the move late into the fourth quarter.

Finally, China's CPI report is set to show the headline year-on-year inflation rate held unchanged at 2.3 percent for a third consecutive month in April. Recent news-flow out of the world's second-largest economy has outperformed relative to consensus forecasts, opening the door for an upside surprise. Such a result may weigh against the probability of stimulus expansion in the minds of investors, undermining market-wide risk appetite.

--- Created by Ilya Spivak, Currency Strategist for DailyFX.com

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