Pound May Rise On BOE Policy Hold, Dollar May Pull Back Further

By Ilya Spivak, Currency Strategist

Talking Points
  • British Pound May Rise as BOE Holds Back Stimulus Despite UK Recession
  • ECB Monthly Report Carries Downside Risks for Euro, Risk Appetite Trends
  • Dollar and Yen Correct Lower, Aussie Outperforms on Jobs Data Overnight

The Bank ofEngland policy announcement headlines the Europeaneconomic calendar. Expectations suggest Mervyn King and companywill stick with the status quo, keeping the target lending rate at0.5 percent and holding off from expanding asset purchases beyond£325 billion. Importantly, today’s decision will be madeon the basis of an updated quarterly inflation report – adocument to be made available publicly next week – meaning itis likely to be representative of where the central bank plans totake policy over the coming three months. This means that stayingon hold here could prove supportive for the British Pound , signaling that inflation concerns thatemerged in minutes from April’s BOE sit-down are likely totrump growth concerns for the time being despite the UK entering atechnical recession in the first quarter.

Separately, the European CentralBank will publish May’s monthly report, whichthis time around will include the quarterly survey of professionalforecasters. Traders will look to the document to inform theiroutlook for the depth of the economic slump plaguing the Eurozoneas well as gauge the likelihood of additional ECB stimulus emergingin the near term. Considering the European downturn presents themost significant headwind facing global growth this year, aparticularly dour report has scope to carry negative implicationsfor the Euro as well as risk appetite at large.

The US Dollar and Japanese Yen sold off overnight as prices corrected aftertwo days of gains. The AustralianDollar outperformed after April’sEmployment report unexpectedly showed the economy added 15,500jobs while the jobless rate fell to 4.9 percent, the lowest in ayear. Details of the report proved less supportive than theheadline number would suggest. The increase in hiring came entirelyfrom part-time jobs while full-time employment declined by 10,500and at least some of the decline in the unemployed owed to ashrinking labor force, with the participation rate dropping to 65.2percent.

Still, the figures proved sufficient to trimbets on another RBA rate cut in June. Priced-in expectations nowpoint to a 63 percent probability of a 25bps reduction in benchmarkborrowing costs next months compared with 90 percent before thejobs data crossed the wires. China’s TradeBalance figures capped the Aussie’s advance however asimports registered at near-standstill while exports grew at theslowest pace in three months, stoking fears of a slowdown inAustralia’s top overseas market. S&P 500 stockindex futures are pointing higher in late Asian trade,hinting stocks-linked currencies may continue to recover against the safe-havenfield.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

17:30

NZD

REINZ House Price Index (APR)

3334.0

-

3343.5

17:30

NZD

REINZ House Price Index (MoM) (APR)

-0.3%

-

1.9%

17:30

NZD

REINZ House Sales (YoY) (APR)

13.8%

-

25.3%

22:30

NZD

Business NZ PMI (APR)

48.0

-

53.8 (R-)

23:50

JPY

Bank Lending incl Trusts (YoY) (APR)

0.3%

-

0.8%

23:50

JPY

Bank Lending Banks ex-Trust (APR)

0.4%

-

0.9%

23:50

JPY

Current Account Total (¥) (MAR)

1589.4B

1449.0B

1177.8B

23:50

JPY

Current Account Balance (YoY) (MAR)

-8.6%

-17.1%

-30.7%

23:50

JPY

Adjusted Current Account Total (¥) (MAR)

785.5B

650.0B

856.2B (R+)

23:50

JPY

Trade Balance - BOP Basis (¥) (MAR)

4.2B

-42.8B

102.1B

0:27

NZD

QV House Prices (YoY) (APR)

3.1%

-

3.0%

1:30

AUD

Employment Change (APR)

15.5K

-5.0K

37.6K (R-)

1:30

AUD

Unemployment Rate (APR)

4.9%

5.3%

5.2%

1:30

AUD

Full Time Employment Change (APR)

-10.5K

-

10.6K (R-)

1:30

AUD

Part Time Employment Change (APR)

26.0K

27.0K (R-)

1:30

AUD

Participation Rate (APR)

65.2%

65.4%

65.4%

2:00

JPY

Tokyo Avg Office Vacancies (%) (APR)

9.23

-

9.04

3:00

CNY

Trade Balance ($) (APR)

18.42B

7.93B

5.35B

3:00

CNY

Exports (YoY) (APR)

4.9%

9.1%

8.9%

3:00

CNY

Imports (YoY) (APR)

0.4%

12.5%

5.3%

4:30

JPY

Bankruptcies (YoY) (APR)

-6.7%

-

-1.9%

5:00

JPY

Eco Watchers Survey: Outlook (APR)

50.9

-

49.7

5:00

JPY

Eco Watchers Survey: Current (APR)

50.9

-

51.8

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:45

EUR

French Industrial Production (MoM) (MAR)

-0.3%

0.3%

Low

6:45

EUR

French Industrial Production (YoY) (MAR)

-1.3%

-1.9%

Low

6:45

EUR

French Central Govt Balance (€) (MAR)

-

-24.2B

Low

6:45

EUR

French Manufacturing Production (MoM) (MAR)

-0.2%

-1.3%

Low

6:45

EUR

French Manufacturing Production (YoY) (MAR)

-2.8%

-3.7%

Low

8:00

EUR

ECB Publishes May Monthly Report

-

-

High

8:00

EUR

Italian Industrial Production sa (MoM) (MAR)

0.1%

-0.7%

Low

8:00

EUR

Italian Industrial Production wda (YoY) (MAR)

-6.2%

-6.8%

Low

8:00

EUR

Italian Industrial Production nsa (YoY) (MAR)

-

-3.5%

Low

8:30

GBP

Industrial Production (YoY) (MAR)

-2.6%

-2.3%

Medium

8:30

GBP

Industrial Production (MoM) (MAR)

-0.3%

0.4%

Medium

8:30

GBP

Manufacturing Production (MoM) (MAR)

0.5%

-1.0%

Medium

8:30

GBP

Manufacturing Production (YoY) (MAR)

-1.3%

-1.4%

Medium

11:00

GBP

BOE Asset Purchase Target (£)

325B

325B

High

11:00

GBP

Bank of England Rate Decision

0.5%

0.5%

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2891

1.3000

GBPUSD

1.6076

1.6215

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya , e-mail ispivak@dailyfx.com . Follow me on Twitter at @IlyaSpivak

To be added to Ilya 's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2012/05/10/Pound_May_Rise_on_BOE_Policy_Hold_Dollar_May_Pull_Back_Further.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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