Pound Looks to CPI for Direction, Euro Eyes Spain Bailout Hopes

The British Pound looks to January’s CPI data in hopes of a rebound trigger. The Euro is looking for Spain bailout request cues as Draghi meets with Mariano Rajoy.

Talking Points

British Pound Looks to CPI to Set the Stage for BOE Inflation Report
Euro May Rise if Spain Bailout Hopes Reemerge as Draghi, Rajoy Meet
Yen Rose as North Korean Nuclear Bomb Test Drove Haven Demand

UK Consumer Price Index figures headline the economic calendar in European hours. Expectations suggest the headline year-on-year inflation rate will remain at 2.7 percent in January, unchanged from the prior month. A softer print has scope to weigh on the British Pound, reinforcing yesterday’s rumors of a dovish lean in the upcoming BOE quarterly inflation report. An outcome in line with expectations may offer a bit of room for a corrective recovery however as markets shift toward neutral ahead of tomorrow’s event risk. Needless to say, a number north of expectations would amplify the likelihood of such a scenario.

Meanwhile, ECB President Mario Draghi is scheduled to meet with Spanish Premier Mariano Rajoy. Borrowing costs in the Eurozone’s fourth-largest economy have crept higher recently and now hover just below a two-month high amid calls for Rajoy’s resignation on corruption accusations. Traders fear that the Prime Minister’s exit would compromise crucial reforms aimed at putting Spain’s fiscal house in order.

With that in mind, traders will keep a close eye on any commentary that comes from the sit-down to gauge whether the much-anticipated Spanish bailout request that activates the ECB OMT bond-buying program will emerge (at least rhetorically). Such an outcome has scope to reduce sovereign stress fears and boost the Euro.

The Japanese Yen outperformed in overnight trade, adding as much as 0.6 percent on average against its top counterparts. The advance appeared to reflect an influx of safety-seeking flows into the regional haven currency following reports that North Korea conducted an underground nuclear weapon test.

Asia Session:

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CCY

EVENT

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21:45

NZD

NZ Card Spending – Retail (MoM) (JAN)

0.3%