The British Pound is unlikely to find lasting fuel in the BOE Financial Stability Report. Revised US GDP figures will help guide Fed QE reduction expectations.

Talking Points

British Pound Unlikely to Find Volatility in BOE Financial Stability Report
US Dollar Looks to Final Q1 GDP Data to Shape Fed QE Taper Expectations

The release of the semi-annual Bank of England Financial Stability Report headlines the economic calendar in European hours. The central bank’s last outing in November 2012 called on banks to increase their capital buffers and reminded of the dangers posed by the Eurozone debt crisis despite the reduction in tail risk since the announcement of OMT several months prior.

Since then, Eurozone financial conditions have been relatively stable but the UK banking side of the equation has proven troublesome. Indeed, UK bank CDS spreads have pushed aggressively higher since early May, pointing to mounting doubt about their stability. While this is certainly cause for concern and seems likely to feature prominently in today’s release, its ability to move financial markets and the British Pound may be limited.

The Prudential Regulation Authority (PRA) reported last week that large UK lenders (including Lloyds, Barclays and RBS) need to come up with an additional £27.1 billion to be adequately capitalized. Plans for securing this capital cushion – presumably including restructuring and some selling of bank assets – are due by the end of 2013. In practical terms, this means the BOE is unlikely to have much that is new to say on the matter for the time being.

Later in the session, the spotlight turns to the third revision of first-quarter US GDP figures. Expectations call for the annualized economic growth rate to print at 2.4 percent, in line with prior estimates. A revision upward is likely to be perceived as encouraging the Federal Reserve to begin tapering QE3 asset purchases relatively sooner, boosting the US Dollar. Needless to say, a revision downward has scope to yield the opposite response.

Capitalize on Shifts in Market Mood with the DailyFX Speculative Sentiment Index

Asia Session:

GMT

CCY

EVENT

ACT

EXP

No Data

Euro Session:

GMT

CCY

EVENT

EXP/ACT

IMPACT