US Dollar, British Pound to Look Past CPI Data as FOMC Looms Large

Talking Points:

New Zealand Dollar Outperforms as G10 FX Pre-Positioning for FOMC Continues
US Dollar May Not Find Fuel in Inflation Data Supporting Status-Quo Fed Bets
UK CPI May Offer Little to Near-Term BOE Outlook, Passing with Little Fanfare

The New Zealand Dollars outperformed as the G10 currencies stage a broad-based advance against the US Dollar. The move is playing out against a backdrop of falling US Treasury bond yields, hinting that continued pre-positioning ahead of this week’s FOMC policy announcement is the driver behind price action.

Within this context, a shift toward neutral on speculative positioning in the face of looming event risk may be the theme du jour. Indeed, the CFTC’s latest Commitment of Traders report showed investors’ net long USD exposure hit a three-month high last week.

Looking ahead, November’s US CPI data is in focus. The core year-on-year inflation rate is expected to rise to 2 percent, the highest since May 2014. The pickup would support the Fed’s predilection for the start of stimulus withdrawal, suggesting the trend in price growth is poised to return toward the central bank’s target once last year’s rapid slump in oil prices rebases out of year-on-year calculations.

The markets are already pricing in an 83 percent probability of a 25bps rate hike however, meaning an upbeat print is unlikely to generate a big-splash response. A downside surprise would clash with the established outlook and may feed liquidation of long-USD exposure.

UK CPI figures are likewise on tap. Consensus forecasts put the core year-on-year price growth rate at a four-month high of 1.2 percent. While certainly an improvement, an outcome within the vicinity of expectations would only underscore the long way that inflation has to go to come within striking distance of the BOE’s target. That means it probably won’t meaningfully accelerate the projected timeline for a rate hike and thereby offer little by way of direction cues to the British Pound.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

00:30

AUD

RBA December Meeting Minutes

–

00:30

AUD

House Price Index (QoQ) (3Q)

2.0%

4.7%

00:30

AUD

House Price Index (YoY) (3Q)

10.7%

10.2%

9.8%

00:30

AUD

New Motor Vehicle Sales (MoM) (NOV)

1.0%

–

-3.7%

00:30

AUD

New Motor Vehicle Sales (YoY) (NOV)

6.0%

–

3.9%

European Session

GMT

CCY

EVENT

EXP

IMPACT