Talking Points:

Australian Dollar Gains as RBA Talks Down Interest Rate Cut Speculation
British Pound May Rise as If Upbeat PMI Print Fuels BOE Rate Hike Bets
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The Australian Dollar outperformed in overnight trade, rising as much as 0.4 percent on average against its leading counterparts. The move followed the RBA monetary policy announcement, where Governor Glenn Stevens and company re-stated the now-familiar call for a “period of stability in interest rates” once again.

A rehashing of the status quo seemingly drove the Aussie higher in that it clashed with more dovish market expectations. Indeed, the priced-in 12-month RBA policy outlook (as implied in OIS rates) has deteriorated dramatically over the past two weeks, appearing to lean toward a rate cut being expected in 2015 ahead of the RBA announcement. The central bank offered to confirmation of such sentiments, saying inflation is seen staying on target in the next two years (and thereby implying no intention to change course in the near term).

November’s UK Construction PMI report headlines the economic calendar in European hours. The index is expected to edge lower for the second consecutive month, showing the pace of homebuilding sector growth slowed to the weakest since May.

UK news-flow has cautiously improved relative to consensus forecasts over recent weeks, hinting that analysts are underestimating the economy’s vigor and opening the door for an upside surprise. Such an outcome may fuel bets on the relatively sooner onset of BOE interest rate hikes, boosting the British Pound. For its part, technical positioning bolsters the case for an upside scenario.

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