British Pound May Turn Higher on Status-Quo BOE Inflation Report

Talking Points:

British Pound May Turn Higher on Status-Quo BOE Inflation Report
Euro Looking for Catalyst to Trigger Rebound, German CPI in Focus
Aussie Dollar Outperformed on Consumer Confidence Data Overnight

UK Jobless Claims data is unlikely to command the typically high level of attention when the numbers cross the wires as investors look ahead to the release of the Bank of England Inflation Report. As we noted in our weekly forecast, volatility risk is tilted to the upside for the British Pound after a moderation in rate hike expectations delivered five consecutive weeks of losses for the UK unit. That opens the door for a correction higher absent a particularly acute dovish shift in the central bank’s rhetoric or an especially aggressive downgrade of its economic outlook. Technical positioning bolsters the case for a corrective upswing. For its part, the jobs report is forecast to show applications for unemployment benefits fell 30,000 in July, marking the smallest drawdown in three months.

Elsewhere on the calendar, the final revision of July’s German CPI reading is expected to confirm the benchmark year-on-year inflation rate fell to 0.8 percent, the lowest level since February 2010. While yesterday’s ZEW Survey figures didn’t spark a Euro recovery as we suspected, the single currency’s relatively modest losses in the wake of a markedly disappointing outcome seemed to underscore the idea that the short-EUR trade has become crowded and prone to a correction. Indeed, the CFTC’s Commitment of Traders report shows speculative net-short positioning hit a two-year high last week. For its part, the chart setup appears to reinforce the possibility of an upswing. An upside revision on the CPI reading stands as the next possible catalyst for a bounce.

The Australian Dollar outperformed in otherwise quiet overnight trade, rising as much as 0.2 percent on average against its leading counterparts. The move followed a strong Westpac Consumer Confidence reading that showed jumped 3.8 percent in the August survey compared with July, marking the largest monthly increase since September 2013. The Aussie’s move higher tracked a parallel advance in Australia’s benchmark 10-year bond yield, hinting upbeat news-flow was interpreted as supportive for RBA monetary policy expectations.

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