Forex: Pound Spikes Higher as BOE’s Carney Sounds Off Against QE

Talking Points

British Pound Soars as BOE’s Carney Sounds Off Against More QE
German CPI Data Unlikely to Dislodge ECB Outlook, Drive the Euro
Fed’s George Strikes Hawkish Tone; Evans to Offer Counter-Balance

The British Pound soared late into the overnight session after Bank of England Governor Mark Carney was quoted in the Yorkshire Post saying that he “[doesn’t] see the case for quantitative easing and has not supported it [because] the recovery has strengthened and broadened.” A supportive House Price report from the Nationwide Building Society likewise helped. The data showed home values rose 5.0 percent year-on-year in September, marking the largest increase since July 2010. The UK unit added as much as 0.6 percent on average against its leading counterparts. We remain long EURGBP.

The Japanese Yen edged higher after Augusts’ CPI data showed inflation accelerated more than economists expected, accelerating to a year-on-year rate of 0.9 percent. That marks the highest reading since November 2008. The result hinted that Bank of Japan’s aggressive monetary easing efforts are bearing fruit, suggesting Governor Haruhiko Kuroda and company may opt not to expand stimulus further.

An adverse jolt to risk trends gave the Yen an added boost following hawkish comments from FOMC policymaker Esther George. The Kansas City Fed President said the fundamentals of the US economy have improved “substantially” and revealed that she’s voted against expanding stimulus at every FOMC meeting in 2013 thus far. She went on to argue that clear job gains warrant a tapering of QE and even warned that delaying a cutback may threaten the Fed’s credibility. The risk-geared Australian and New Zealand Dollars briefly dipped lower following the comments but swiftly recovered thereafter.

Looking ahead, the preliminary set of September’s German CPI numbers is in focus. The headline year-on-year inflation rate is expected to print at 1.5 percent, unchanged from the prior month. A print in line with expectations is unlikely to yield a meaningful change in investors’ ECB monetary expectations and thereby could prove to be a non-event for the Euro.

More “fed-speak” is likewise on tap, with Chicago Fed President Charles Evans due to speak in Olso. Markets remain hyper-sensitive to anything that shapes QE “taper” expectations and are likely to pay close attention to what is said. Evans is a notable dove, meaning his message is likely to strike a sharp contrast with that of Esther George and may weigh on the US Dollar while offering a lift to risky assets.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

23:05

GBP

GfK Consumer Confidence Survey (SEP)

-10

-11

-13

23:30

JPY

National CPI (YoY) (AUG)

0.9%

0.8%

0.7%

23:30

JPY

National CPI Ex-Fresh Food (YoY) (AUG)

0.8%

0.7%

23:30

JPY

National CPI Ex Food, Energy (YoY) (AUG)

-0.1%

23:30

JPY

Tokyo CPI (YoY) (SEP)

0.5%

23:30

JPY

Tokyo CPI Ex-Fresh Food (YoY) (SEP)

0.2%

0.3%

0.4%

23:30

JPY

Tokyo CPI Ex Food, Energy (YoY) (SEP)

-0.3%

-0.4%

1:15

USD

Fed’s George Speaks on the Economy

–

1:30

CNY

Industrial Profits YTD (YoY) (AUG)

12.8%

–

11.1%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

IMPACT