British Pound Looking to BOE Commentary to Fuel Recovery

Talking Points:

British Pound Looking to BOE Commentary to Power a Corrective Recovery
Australian Dollar Tumbles on Soft Consumer Confidence Data, Risk Aversion
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Commentary from Bank of England officials remains in focus in European trading hours. This time, BOE Governor Mark Carney will be joined by Deputy Governor Nemat Shafik and MPC committee members Martin Weale and David Miles in testimony before Parliament’s Treasury Select Committee on Augusts’ quarterly Inflation Report (QIR).

Mr. Carney argued in favor of an initial rate hike by spring of 2015 with gradual tightening thereafter in a speech in Liverpool yesterday. At least one of his colleagues also due to testify sees that as too dovish considering Mr. Weale was one of the two dissenting votes in favor of an August rate increase.

The British Pound paused to digest losses yesterday, ending a 5-day losing streak, as feverish fears of the looming Scottish Independence referendum cooled absent novel news-flow (as expected). If the cumulative tone of BOE officials’ rhetoric betrays a growing hawkish consensus, the UK unit may at last find fuel for a meaningful recovery.

The Australian Dollar turned sharply lower in overnight trade, falling as much as 0.5 percent on average against its leading counterparts. Selling pressure emerged against a backdrop of disappointing news-flow, with September’s Westpac Consumer Confidence index dropping 4.6 percent to register the first decline in four months.

A broader deterioration in risk appetite compounded downward pressure on the sentiment-linked Australian unit. The MSCI Asia Pacific benchmark regional stock index fell 0.6 percent in a move the news-wires labeled as follow-on from a rout on Wall Street, where the S&P 500 issued the largest daily drop in 5 weeks. We are looking for an opportunity to enter short AUDUSD.

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