Talking Points

Pound May Ignore Mixed Cues in UK CPI Report, Look On to BOE Minutes
Euro Unlikely to Find Upside Catalyst in Another Marginal ZEW Improvement
Dollar Looks to US CPI to Help Set the Tone for the FOMC Announcement

Augusts’ UK CPI reading is expected to see the headline year-on-year inflation rate tick lower to 2.7 percent, the weakest in three months. The core inflation gauge that strips out the effect of volatile energy, alcohol and tobacco prices to get at the baseline trend in price growth is forecast to edge higher to 2.1 percent however. That suggests the release may not offer a clear directional signal for the British Pound in the near term, particularly as traders wait for tomorrow’s arguably more market-moving release of minutes from September’s BOE meeting. A meaningful surprise to the upside may boost Sterling as traders speculate the central bank may reach the inflation-linked “knockout” threshold for its forward-guidance regime. Conversely, a particularly soft reading will probably have the opposite effect.

Meanwhile, Germany’s ZEW Survey of investor confidence is due to show sentiment improved for a second consecutive month, with the forward-looking Expectations gauge hitting the highest level since March. The result is unlikely to be a significant game-changer for the Euro. The ECB’s forward guidance regime envisions the benchmark interest rate at its current rate or lower. The central bank is probably leading toward the on-hold side of the argument at this point considering news-flow out of the single currency has increasingly outperformed relative to expectations since late April (according to data compiled by Citigroup). With that in mind, a marginally better ZEW print would not meaningfully change the policy outlook landscape and thereby offer little impetus for lasting exchange rate volatility in its wake.

On balance, the US CPI report due later in the session is likely to draw the most attention as Federal Reserve monetary policy speculation heats up before this week’s FOMC meeting. The sit-down is expected to produce the first “taper” of the QE3 stimulus program, with the baseline scenario calling for a $10-15 billion cutback in monthly asset purchases. The path forward beyond that remains highly uncertain however, offering plenty of fodder for price action. With that in mind, supportive US news-flow that argues in favor of a sustained QE reduction cycle into the end of the year is likely to boost the US Dollar (and vice versa).Median forecasts suggest the headline inflation rate will inch lower to 1.6 percent in August, snapping three months of consecutive gains and yielding the weakest reading since May.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

1:30

AUD

RBA September Policy Meeting Minutes

–

1:30

AUD

New Motor Vehicle Sales (MoM)

0.8%

–

-3.6%

1:30

AUD

New Motor Vehicle Sales (YoY)

0.2%

–

3.0%

2:00

CNY

Conference Board Leading Index (AUG)

269.3

–

267.4

4:00

JPY

Tokyo Condominium Sales (YoY)

53.3%

–

31.6%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

IMPACT