British Pound May Weaken as Soft CPI Drives Dovish BOE Bets

The British Pound may fall as CPI inflation hits a seven-month low, driving expectations of an expanded BOE stimulus effort on the horizon.

Talking Points

British Pound May Weaken as Data Points to Inflation Slowdown
Yen Drops as Japan’s Amari Walks Back Supportive Comments
Australian Dollar Gains After RBA Minutes Dent Rate Cut Bets

UK Consumer Price Index figures are in focus in European trading hours. Expectations call for the year-on-year inflation rate to weaken to 2.6 percent in April, the lowest in seven months. The outcome may underpin a dovish shift in investors’ Bank of England policy outlook, weighing on the British Pound. Indeed, the UK unit has shown increasingly sensitivity to yield considerations recently, with the correlation between GBPUSD and the UK-US 10 year bond yield spread now at the highest in a month (0.67 on rolling 20-day studies). We remain short.

The Japanese Yen underperformed in overnight trade, down as much as 0.4 percent against its leading counterparts, after Economy Minister Akira Amari tempered yesterday’s supportive commentary. Mr. Amari said he can’t precisely saw when the correction from a strong Yen will end, downplaying a much-cited sound-bite where he suggested aggressive depreciation may hurt people’s lives and even hinted it is the government’s job to offset that.

The Australian Dollar edged higher, erasing earlier losses, after the minutes from May’s RBA policy meeting cut into expectations for another 25bps reduction in the benchmark lending rate in June. The central bank said it saw the effects of prior stimulatory policy “continuing to emerge” and work through the economy, a familiar rhetorical line that has previously signaled a neutral policy bias.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

0:00

AUD

Conference Board Leading Index (MAR)

0.1%

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0.3%

1:30

AUD

RBA Releases Minutes from May Meeting

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