The Euro and the British Pound may not find fuel for lasting moves as the BOE prints minutes from December’s meeting and Germany’s IFO survey crosses the wires.

Talking Points

British Pound Will Find Few Surprises in December’s BOE Minutes
Euro Unlikely to Find Lasting Support in German IFO Improvement

Minutes from December’s Bank of England policy meeting headline the economic calendar in European hours. The rate-setting MPC committee kept the benchmark interest rate unchanged and maintained its asset-purchase target at £375 billion at the sit-down. With that in mind, traders will look be looking at policymakers’ voting pattern to discern any emerging lean toward additional easing in the months ahead.

The quarterly Inflation Report published in November highlighted the difficulty faced by UK policymakers as growth remains anemic while sticky growth in student tuition fees and domestic energy costs keeps consumer inflation readings elevated. However, the difficult global environment – particularly the difficulties seen in the Eurozone – was singled out as likely to produce a long slog toward recovery, with the BOE underscoring the limited impact of domestic policy on such forces.

On balance, this seems to reinforce the likelihood of a central bank firmly in wait-and-see mode for the time being. Confirmation of this assessment in the Minutes is unlikely to prove materially market-moving for the British Pound, offering little that has not been amply priced in by investors.

Separately, Germany’s IFO Survey of business confidence is expected to show continued improvement. The forward-looking Expectations component of the release has closely tracked Italian -year bond yields over recent years, reasonably putting Eurozone funding stress as the measure’s key driver. That means a firm IFO print is unlikely to yield lasting fuel for a Euro advance considering traders have been working to price in ebbing “tail” risk for some time now.

Turning to the sentiment side of the equation, S&P 500 index futures are treading water in overnight trade, making for a clouded reading on dominant risk appetite trends. On-going US “fiscal cliff” negotiations remain a wildcard, with news-flow indicative of an emerging accord likely to produce a risk-on mood (and vice versa). Crucially, the implications of swings in sentiment for the US Dollar have been limited recently. Indeed, the inverse correlation between the Dow Jones FXCM USD Index and the MSCI World Stock Index now stands at its weakest in over three months (on 20-day percent change studies).

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