Talking Points:

British Pound Awaits BOE Officials’ Testimony to Make its Next Move
Euro to Look Through German IFO Data, Focus on ECB Commentary
US Dollar Hoping for a Lifeline in Home Sales, Confidence Figures

Bank of England monetary policy expectations are in focus in European trading hours as Governor Mark Carney, Deputy Governor Charles Bean and MPC members David Miles and Ian McCafferty testify before Parliament’s Treasury Committee. The correlation between GBPUSD and the UK-US 2-year bond yield spread is 0.90 (on rolling 20-day studies), suggesting prices are highly sensitive to policy bets and hinting the sit-down may be a major driver of British Pound volatility.

Minutes from June’s BOE meeting revealed MPC officials were surprised at the low probability the markets seem to be attaching to a 2014 interest rate hike, echoing similar comments from Mr. Carney himself. Such upbeat rhetoric has helped push Sterling above 1.70 to the US Dollar once again. MPs will no doubt grill the central bank officials on the logic behind such optimism as UK economic news-flow increasingly sours while inflation stands at the lowest since October 2009. If Carney and company are forced to backtrack, the UK unit may follow suit.

June’s German IFO Survey of business confidence figures is likewise on tap. Economists expect the headline Business Climate index to edge lower to 110.3, marking the weakest reading in six months. News-flow from the currency bloc has trended lower relative to expectations since late January, opening the door for a downside surprise.

While such an outcome may initially weigh on the Euro, follow-through could prove limited as investors’ focus remains on the fate of the ECB’s forthcoming asset purchase program. With that in mind, scheduled commentary from the central bank’s board members Ewald Nowotny and Benoit Coeure may prove more significant if the two officials opt to comment on the strategy for stimulus expansion and its likely timing. As it stands, EURUSD is struggling to find momentum near the 1.36 figure.

Later in the day, the spotlight shifts to US news-flow. May’s New Home Sales report and June’s Consumer Confidence figure are on tap. The trend in US economic data outcomes marked an important turning point relative to consensus forecasts in early April and has broadly (if unevenly) continued to improve since. More of the same may help engineer a re-evaluation of US Dollar weakness following last week’s FOMC announcement, sending the benchmark unit higher.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

23:30

AUD

ANZ Roy Morgan Weekly Consumer Conf Index

105.7

–

103.2

2:00

CNY

Conference Board Leading Index (MAY)

290.2

–

288.1

European Session

GMT

CCY

EVENT

EXP

IMPACT