Talking Points:

British Pound May Turn Downward as BOE Policy Standstill Continues
US Dollar Underperforms as Asian Markets Respond to FOMC Minutes
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The Bank of England monetary policy announcement headlines the economic calendar European trading hours, with policymakers are expected to deliver another “no-change” decision. That seems to make sense: the British Pound has moved lower since mid-September against a backdrop of an increasingly disappointing run of economic news-flow.In fact, data from Citigroup suggests that on the whole, UK data releases are now underperforming consensus forecasts by the widest margin in a month.

Needless to say, a downturn on the economic data front bodes ill for the hawks on the BOE’s rate-setting MPC committee, who will probably find it that much harder to build a five-vote majority needed to deliver an increase in borrowing costs. That reinforces the probability of a non-event this time around. In fact, the larger Pound drop from mid-July has faithfully tracked erosion in various measures of BOE policy bets, including an OIS-based gauge from Credit Suisse as well as front-end UK bond yields (with a brief deviation courtesy of the Scottish Independence referendum).Confirmation of standstill may further erode Sterling’s yield-based appeal, sending prices lower. We remain short GBPUSD.

The US Dollar underperformed in overnight trade, sliding to the weakest level in two weeks, as Asian markets took their turn to respond to the release of minutes from September’s FOMC meeting. The document failed to materially build on speculation that the Federal Reserve will be quick to raise interest rates after the QE3 stimulus program is wound up this month (as expected).

Investors seemed particularly taken with comments showing central bank officials saw the rising greenback as a risk to exports and overall economic growth. The Australian and New Zealand Dollars outperformed as the prospect of longer-lasting Fed accommodation fueled a swell in risk appetite on Asian bourses, boosting the sentiment-geared currencies.

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