Talking Points:

British Pound May Rise as BOE Testimony Fuels Rate Hike Speculation
US Dollar Disproportionately Vulnerable to Losses on Yellen Comments
RBNZ Survey Puts Inflation Outlook at 15-Year Low, Sinks Kiwi Dollar

Bank of England monetary policy expectations will be in focus in European trading hours as Governor Mark Carney, Deputy Governor Ben Broadbent and MPC committee member Martin Weale testify about the latest quarterly Inflation Report to Parliament’s Treasury Committee. The hawkish-sounding document triggered a rebuilding of rate hike expectations (as expected) when it was unveiled and more of the same may boost the British Pound. We are now long GBPUSD and short EURGBP.

Later in the day, the spotlight turns to Federal Reserve Chair Janet Yellen, who is due to deliver her semi-annual Congressional testimony on monetary policy and the global economic outlook. As with last week’s publication of minutes from January’s FOMC meeting, the outing may carry a disproportionally higher risk of diminishing Fed rate hike bets versus the alternative.

The US Dollar has been unable to rise even when key economic data proved clearly supportive (like January’s payrolls report) while speculative net-long USD positioning is near a record high. On balance, this warns that the “policy divergence” narrative that propelled the greenback higher since mid-2014 may be running out of fresh fodder. If Yellen restates recently voiced worries about an increasingly wobbly global environment, that may pour cold water on tightening speculation and send the US unit downward.

The New Zealand Dollar underperformed in overnight trade, falling as much as 0.6 percent on average against the majors, after an RBNZ survey of inflation expectations showed businesses’ two-year outlook put price growth at a 15-year low of 1.8 percent. The Kiwi’s slide tracked a drop in front-end yields, hinting the drop in price growth bets weighed on interest rate hike prospects.

The Australian and Canadian Dollars followed their commodity bloc counterpart downward, losing as much as 0.3 and 0.2 percent respectively. Meanwhile, the Yen declined as Japan’s benchmark Nikkei 225 stock index advanced, undermining demand for the safety-linked currency.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

22:30

AUD

ANZ Roy Morgan Weekly Consumer Conf

110.8

–

109.8

23:50

JPY

PPI Services (YoY) (JAN)

3.4%

3.6%

3.5%

2:00

NZD

RBNZ 2yr Inflation Expectation (1Q)

1.8%

–

2.1%

5:00

JPY

Small Business Confidence (FEB)

46.5

47.0

46.3

European Session

GMT

CCY

EVENT

EXP

IMPACT