US Dollar, Pound May Fall as Soft Inflation Dents Rate Hike Bets

Talking Points:

US Dollar, British Pound May Fall as Soft CPI Figures Dent Rate Hike Bets
Limited ECB Policy Impact to Contain Euro Follow-Through on PMI Data
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February’s UK CPI data headlines the economic calendar in European trading hours. The core year-on-year inflation rate is expected to slip to 1.3 percent. UK price-growth data has increasingly disappointed relative to consensus forecasts over recent months, suggesting economists’ models are over-estimating inflation and opening the door for a downside surprise. Such an outcome may further depress Bank of England interest rate hike bets, weighing on the British Pound.

The preliminary set of March Eurozone PMI figures is likewise on tap. The region-wide composite index is expected to show the pace of manufacturing- and service-sector activity growth accelerated for a fourth consecutive month. The outcome seems unlikely to offer much by way of lasting Euro volatility however considering the results’ limited impact on the near-term ECB policy outlook.

Later in the day, the spotlight moves to the US CPI report. The core measure is seen rising to 1.7 percent year-on-year, marking a three-month high. Similarly to the UK however, US inflation data has increasingly underperformed relative to expectations since mid-2014 however. If that trends continues, a soft result may be in the cards. Such an outcome may pour cold water on Fed tightening speculation, pushing the US Dollar downward.

The Japanese Yen outperformed in overnight trade, rising as much as 0.2 percent on average against its leading counterparts. The move appears to have reflected haven flows amid ebbing risk appetite. The MSCI Asia Pacific regional benchmark equity index traded, with at least some of the negative mood seemingly stemming from a disappointing HSBC Chinese Manufacturing PMI data. The report showed factory-sector activity unexpectedly contracted at the fastest pace in 11 months in March.

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