Tuesday, 17 June 2014

Pound May Pull Back as US Dollar Bounces on UK, US Inflation Data

Talking Points:

  • British Pound May Give Back Some Recent Gains if CPI Data Disappoints
  • Upbeat US Inflation Data May Help US Dollar Correct Higher Pre-FOMC
  • Aussie Dollar Fell as Minutes from June RBA Meeting Struck Dovish Tone

UK inflation data headlines the economic calendar in European hours. The headline year-on-year CPI growth rate is expected to tick lower to 1.7 percent in May. A print in line with expectations would fall in line with the three-month trend average, offering relatively little in terms of market-moving potential for the British Pound. However, it is noteworthy to mention that such UK price-growth data has tended to undershoot expectations over the past few months. If this trend continues, a soft result may encourage investors to dial back BOE tightening bets and send Sterling lower. Indeed, tentative signs of topping have emerged in GBPUSD.
Later in the day, the spotlight will turn to US CPI figures. Unlike the UK, inflation data from the North American giant has steadily improved relative to consensus forecasts since the beginning of the year. That hints analysts are underestimating cost pressures, opening the door for an upside surprise. Such an outcome help trigger a bounce in the US Dollar as markets move to a more neutral setting following last week’s selloff in the run-up to the upcoming FOMC policy meeting.

The Australian Dollar underperformed in overnight trade, sliding as much as 0.4 percent on average against its leading counterparts. The selloff was triggered by the release of minutes from June’s RBA policy meeting. As we suspected, the central bank sounded decidedly dovish in its rhetoric, saying accommodative policy is likely to remain appropriate for some time as economic growth registers below trend and inflation holds on-target.



By Ilya Spivak, Currency Strategist

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